The Internal Revenue Service said Tuesday that the Tax Cuts and Jobs Act of 2017 won’t affect the tax year 2018 dollar limitations for retirement plans the IRS had announced last year.
Last year, the IRS announced the retirement and pension plan limitations in IR 2017-177 and detailed them in Notice 2017-64 (see IRS increases retirement plan contribution limits for 2018).
The IRS has been providing guidance on the new tax law amid questions from tax professionals and taxpayers alike on what impact it will have this year. Tuesday's announcement helps clarify one of the issues perplexing some practitioners. It will also help employers advise their employees on how much they can contribute out of their paychecks to their retirement plans.
The new tax law that Congress passed in December provides dollar limitations on benefits and contributions under qualified retirement plans. The new law also requires the Treasury Department to adjust these limits ever year for cost of living increases. Those adjustments are supposed to be made using procedures similar to those used to adjust benefit amounts under the Social Security Act.
The new tax law didn’t change the section of the tax code limiting benefits and contributions for retirement plans, so the qualified retirement plan limitations for tax year 2018 that the IRS announced last year and detailed in its guidance stay unchanged.
The new tax law also specifies that contribution limits for IRAs, along with the income thresholds related to individual retirement accounts and the saver’s credit, are supposed to be adjusted for changes in the cost of living using procedures that are employed to make cost-of-living adjustments that apply to many of the basic income tax parameters.
The new tax law made some changes to how these cost of living adjustments are made, but the IRS said that after taking the applicable rounding rules into account, the amounts for 2018 in the news release and the guidance will remain unchanged.
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