| Notice 2005-75 |
November 7, 2005 |
2006 Limitations Adjusted As Provided in Section 415(d), etc.
Section 415 of the Internal Revenue Code (the Code) provides for dollar
limitations on benefits and contributions under qualified retirement plans.
Section 415 also requires that the Commissioner annually adjust these limits
for cost-of-living increases. Other limitations applicable to deferred compensation
plans are also affected by these adjustments. Many of the limitations will
change for 2006. For most of the limitations, the increase in the cost-of-living
index met the statutory thresholds that trigger their adjustment. Furthermore,
several of these limitations, set by the Economic Growth and Tax Relief Reconciliation
Act of 2001 (EGTRRA), are scheduled to increase at the beginning of 2006.
For example, under EGTRRA, the limitation under § 402(g)(1) of the
Code on the exclusion for elective deferrals described in § 402(g)(3)
is increased from $14,000 to $15,000. This limitation affects elective deferrals
to section 401(k) plans and to the Federal Government’s Thrift Savings
Plan, among other plans.
Cost-of-Living limits for 2006
Effective January 1, 2006, the limitation on the annual benefit under
a defined benefit plan under § 415(b)(1)(A) is increased from $170,000
to $175,000. For participants who separated from service before January 1,
2006, the limitation for defined benefit plans under § 415(b)(1)(B)
is computed by multiplying the participant’s compensation limitation,
as adjusted through 2005, by 1.0383.
The limitation for defined contribution plans under § 415(c)(1)(A)
is increased from $42,000 to $44,000.
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 § 415(b)(1)(A).
These dollar amounts and the adjusted amounts are as follows:
The annual compensation limit under §§ 401(a)(17), 404(l),
408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $210,000 to $220,000.
The dollar limitation under § 416(i)(1)(A)(i) concerning the
definition of key employee in a top-heavy plan is increased from $135,000
to $140,000.
The dollar amount under § 409(o)(1)(C)(ii) for determining
the maximum account balance in an employee stock ownership plan subject to
a 5-year distribution period is increased from $850,000 to $885,000, while
the dollar amount used to determine the lengthening of the 5-year distribution
period is increased from $170,000 to $175,000.
The limitation used in the definition of highly compensated employee
under § 414(q)(1)(B) is increased from $95,000 to $100,000.
The annual compensation limitation under § 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 § 401(a)(17) to be taken into account,
is increased from $315,000 to $325,000.
The compensation amount under § 408(k)(2)(C) regarding simplified
employee pensions (SEPs) remains unchanged at $450.
The compensation amounts under § 1.61-21(f)(5)(i) of the Income
Tax Regulations concerning the definition of ”control employee”
for fringe benefit valuation purposes remains unchanged at $85,000. The compensation
amount under § 1.61-21(f)(5)(iii) is increased from $170,000 to
$175,000.
The limitation under § 408(p)(2)(E) regarding SIMPLE retirement
accounts remains unchanged at $10,000.
Limitations specified by statute
The Code, as amended by EGTRRA, specifies the applicable dollar amount
for a particular year for certain limitations. These applicable dollar amounts
are as follows:
The limitation under § 402(g)(1) on the exclusion for elective
deferrals described in § 402(g)(3) is increased from $14,000 to
$15,000.
The limitation on deferrals under § 457(e)(15) concerning
deferred compensation plans of state and local governments and tax-exempt
organizations is increased from $14,000 to $15,000.
The dollar limitation under § 414(v)(2)(B)(i) for catch-up
contributions to an applicable employer plan other than a plan described in
§ 401(k)(11) or 408(p) for individuals aged 50 or over is increased
from $4,000 to $5,000. The dollar limitation under § 414(v)(2)(B)(ii)
for catch-up contributions to an applicable employer plan described in § 401(k)(11)
or 408(p) for individuals aged 50 or over is increased from $2,000 to $2,500.
Administrators of defined benefit or defined contribution plans that
have received favorable determination letters should not request new determination
letters solely because of yearly amendments to adjust maximum limitations
in the plans.
The principal author of this notice is John Heil of the Employee Plans,
Tax Exempt and Government Entities Division. For further information regarding
the data in this notice, please contact the Employee Plans’ taxpayer
assistance telephone service at 1-877-829-5500 (a toll-free call) between
the hours of 8 a.m. and 6:30 p.m. Eastern time Monday through Friday. For
information regarding the methodology used in arriving at the data in this
notice, please contact Mr. Heil at 1-202-283-9888 (not a toll-free call).
Internal Revenue Bulletin 2005-45
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