Compliance November 1, 2018

IRS Announces Contribution and Benefit Limits for 2019

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.

Reported by

The Internal Revenue Service (IRS) announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019. 

According to Notice 2018-83, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The limit on annual contributions to an individual retirement account (IRA), which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals ages 50 and older is not subject to an annual cost-of-living adjustment and remains $1,000.

Effective January 1, 2019, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $220,000 to $225,000. For a participant who separated from service before Jan. 1, 2019, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2018, by 1.0264.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2019 are as follows:

  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $275,000 to $280,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $175,000 to $180,000.
  • The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period is increased from $1,105,000 to $1,130,000, while the dollar amount used to determine the lengthening of the five-year distribution period is increased from $220,000 to $225,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $120,000 to $125,000.
  • The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals ages 50 or older remains unchanged at $3,000.
  • The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $405,000 to $415,000.
  • The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,500 to $13,000.
  • The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $18,500 to $19,000.
  • The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000.
  • The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $220,000 to $225,000.
  • The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $130,000.

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is increased for 2019 from $1,087,000,000 to $1,097,000,000.

The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2019 are as follows:

  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $38,000 to $38,500; the limitation under Section 25B(b)(1)(B) is increased from $41,000 to $41,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $63,000 to $64,000.
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for taxpayers filing as head of household is increased from $28,500 to $28,875; the limitation under Section 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $47,250 to $48,000.
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for all other taxpayers is increased from $19,000 to $19,250; the limitation under Section 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,500 to $32,000.
  • The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,500 to $6,000.
The Markets October 31, 2018

J.P. Morgan Offers 2019 to 2029 Capital Market Assumptions

If they do not embrace immigration in a big way, developed economies are likely to run into labor shortages that will curtail their growth potential; emerging markets will likely benefit from demographic trends.

Reported by

The 2019 J.P. Morgan Asset Management capital market assumptions report was unveiled this week in New York City.

Overall, the firm is projecting 2.5% global growth per year for the foreseeable future. At the same time, J.P. Morgan economists and portfolio managers anticipate increased cyclical risk, based on a variety of factors.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

According to David Kelly, the firm’s chief global strategist, the 2019 assumptions suggest increased global financial stability. He says this is a good thing insofar as it means recessions and downturns are likely to be weaker and shorter lived relative to, say, the Great Recession of 2008 and 2009. But on the flip side, this also means that growth is likely to be slower—and that there will be fewer opportunities to exploit market rebounds.

“We take these long-term assumptions very seriously,” Kelly says, pointing out that he worked with a staff of some 35 analysts who collectively burned through more than 9,000 research hours and thousands of cups of coffee to create these assumptions. “Investors spend so much time thinking and talking about the short term—but we know that our institutional clients are truly long-term investors and that serving them effectively requires a very broad and long-term outlook on our end.”

The full market report is far too broad to be explored in one news article, and so individuals should take time to review it on their own. The analysis considers 50 different asset classes and sectors and is complemented by dozens of illustrative charts. 

In U.S. equities, J.P. Morgan anticipates 5.25% potential growth on average each year for the next 10 to 15 years. According to Kelly, U.S. equities “look pretty good,” but the macroeconomic business cycle presents challenges to investors.

“Many investors are focused on the short-term right now and they are enthusiastic to see where U.S. growth is today, especially in relative terms to the rest of the world,” Kelly says. “But from a long-term perspective we have to question the sustainability of this growth. Whether we point to tax cuts or growing government debt, the fact is that fiscal stimulus in the United States is still going on in a significant way. This will not be sustainable. Eventually, these factors could put a squeeze on performance.”

Kelly warns that J.P. Morgan anticipates potentially severe labor supply constraints in developed countries moving forward. He urges investors and policymakers to consider the importance of immigration when it comes to fueling future economic growth in developed markets.

“On the fixed-income side, there is almost a new equilibrium forming,” Kelly says. “We’ve had such great debt loads and such low interest rates that it has reshaped the behavior of central banks in a significant way. We may even see central banks keep interest rates much lower than they have in the past, simply in order to help their governments finance these major debt loads. This in turn means we may be facing lower interest rates globally than we traditionally would expect, and for potentially for quite a long time.”

Important to note for U.S. investors, this is the global outlook.

“In the U.S., we have finally moved some way towards normality in interest rates,” Kelly says. “But if you look at Europe, interest rates are still very much on the floor. The result is that, if you’re in the U.S., you can start to look towards the traditional playbook for fixed income.”

Introducing the new capital market report with Kelly this week is John Bilton, the firm’s head of multi-asset strategy and solutions. He urges investors to think about “getting paid for risk-taking.”

“As the business cycle turns, you cannot just dump all your risk assets,” he says. “You have to plan your way through. One way to keep your footing is to think about what risk you are carrying and better defining how you are being compensated—or not—for that risk. I think investors in particular should rethink liquidity risk and consider being compensated for accepting lower liquidity, for example in private equity. This type of investing will become more important as the cycle progresses.”

Kelly and Bilton urge investors to look at the distribution of the projected returns in the report—rather than just the median figures.

“When we are late in the cycle, it means we can’t just think about the mean returns or the average expected returns,” Bilton says. “You have to decide what is best for the portfolio structure you have and the cash flow requirements you have in that portfolio. Only from there can you define the appropriate level of risk and the associated anticipated rate of return.”  

«

 

You’re viewing the first of three free articles.

 Subscribe to a free PW Newsletter! 

…subscribing gets you free access to PW’s online content!

 SUBSCRIBE & GET FREE ACCESS! 

If you’re a subscriber, please login.

Close