Retirement plan limits and deadlines for the 2016 tax year

Below is a summary of key retirement plan information for the 2016 tax year.

 

Retirement plan deadlines and limits for the 2016 tax year
plan type  deadlines contribution limit
Traditional and ROTH IRA plan must be established and contribution must be made by the tax filing deadline, no extensions $5,500, $6,500 if age 50 or older
SEP IRA plan must be established and contribution must be made by the tax filing deadline, including extensions 25% of wage or salary compensation or $53,000, whichever is lesser
SIMPLE IRA new plan must be established by October 1 $12,500, $15,500 if age 50 or older
401K plan plan must be established by the end of the calendar year.  contribution must be made by the tax filing deadline, including extensions $18,000, $24,000 if age 50 or older for employee deferrals, $53,000 for total contributions, including employer contributions
Solo 401K plan plan must be established by the end of the calendar year.  contribution must be made by the tax filing deadline, including extensions $18,000, $24,000 if age 50 or older, plus 25% of compensation, or 20% of self employment income, up to a limit of $53,000, or $59,000 for an individual age 50 or older
Defined benefit pension plan contribution must be made by September 15 for plan with fiscal year ending December 31 of prior year benefit amount can not exceed $210,000 or average of highest 3 years of compensation.  Contribution limit is based upon actuarial computations based upon these benefit limits

 

Employee pension plan

If you have a defined benefit employee pension plan provided by your employer in the United States, you are one of the lucky ones in that these plans are not offered as often as they used to be.  In recent decades a shift has occurred in the retirement plan landscape away from traditional defined benefit pension plans and toward what are known as defined contribution plans, specifically 401K and 403B plans.  This has resulted in the risk related to funding retirement being shifted from having been borne by the employer to being borne by the employee.  If you are of the relatively few who still has a defined benefit plan, this article will explain some of the basic things you should know related to planning your retirement as relates to your pension plan.

Pension plans for small business owners

Defined benefit pension plans provide an excellent option for small business owners looking to save for retirement.  Similar to SEP-IRA’s and 401K plans, business owners can use these plans to save in a tax deferred manner.  The advantage of these plans is that they allow for larger contributions for the business owners, and are therefore ideal for highly compensated owners or partners of small businesses.  The disadvantage is that they are more time consuming and costly to administer than many of their alternatives.  Contributions to defined benefit pension plans are typically tax deductible to the business, and earnings grow tax deferred until they are withdrawn or paid out.  Unlike a SEP IRA or 401K plan, contributions must be made every year.  The contribution amount is based on a number of factors including age, compensation, retirement age, and assumed rate of return on pension assets.  If the business has employees, they must typically be included in the plan.