For 401(k) Plans which also have Profit Sharing provisions, the maximum allocation for each participant will be $58,000 (increased from $57,000). This includes 401(k) deferral, matching and forfeitures allocated. The catch-up contribution is over and above for a maximum of $64,500 for those aged 50 or older.

Participants in a SIMPLE IRA will be able to contribute up to $13,500, and, if age 50 or older, an additional $3,000 in catch-up contributions. These amounts are unchanged from the 2020 limits.

IRA contribution limits will be unchanged. The maximum deductible IRA contribution will be $6,000, and, if age 50 or older, an additional $1,000 in catch-up contributions. These amounts are unchanged from the 2020 limits.

The Social Security Taxable Wage Base will increase to $142,800.

Some of these provisions require that the Plan Document be amended to allow them. For example, in order to take advantage of the Birth or Adoption withdrawal, your retirement Plan Document must be amended. Birth or Adoption Withdrawals can also be taken from IRAs.

Birth or Adoption Withdrawals of up to $5,000 may be taken within 1 year of the birth or adoption. These withdrawals are not subject to the 10% penalty for early withdrawal, and can be repaid to the plan or IRA without regard to the 60-day requirement to repay or rollover the money. This provision was effective for distributions made after December 31, 2019.

It has been recognized that employees are living longer and working longer. As a result, the age to start RMDs has been increased from 70 ½ to 72. In addition, individuals age 70 ½ and older are now allowed to make contributions to their IRAs, as long as they have earned income and meet the other criteria for IRA contributions.

Many 401(k) Plans currently require employees to complete 1 year of service to be eligible to enter the Plan. For plan years starting after December 31, 2020, employees may also qualify after working 3 consecutive years in which they work at least 500 hours. Since this 3 consecutive year rule is effective in 2021, employees who meet this criteria will enter the plan in 2024.

President Trump signed the CARES Act making it effective March 27, 2020. Certain provisions of the CARES Act may affect your 401(k), Profit Sharing or 403(b) Plan. These new provisions are optional changes you may make to your Plan.

Plans will need to be amended to take advantage of the Special Rules for use of Retirement Funds, either through distributions or loans.

A Coronavirus-Related Distribution (CRD) may be allowed from eligible retirement plans during calendar year 2020 to a participant
1. Who is diagnosed with the virus by a test approved by the CDC,
2. Whose spouse or dependent is diagnosed with the virus by a test approved by the CDC, or
3. Who experiences adverse financial consequences as a result of being quarantined, furloughed or laid-off or having work hours reduced, being unable to work due to lack of child care, closing or reduced hours of a business owned or operated by such an individual.

The Plan may allow a CRD to a participant up to $100,000. Such CRD will be exempt from 10% early withdrawal penalty if the participant is under age 59 ½, and the participant can spread the taxation over a 3 year period. Within the 3 year period, any CRD can be repaid to the plan.

The Plan may also allow extended loan provisions to those participants who meet the above CRD criteria. Current regulations limit loans to the lesser of 50% of the participant’s vested account balance or $50,000. The CARES Act allows plans to increase the loan provisions to the lesser of 100% of the participant’s vested account balance or $100,000. The CARES Act also allows loan payments to be suspended for the remainder of 2020. The maturity date of the loan could be extended for 1 year. The loan would need to be re-amortized accordingly.

Participants subject each year to Required Minimum Distribution will not be required to take a distribution in 2020. This provision is extended to IRA distributions.

Safe Harbor 401(k) plans may suspend Safe Harbor Match or Non-elective contributions but only after giving 30 day notice to employees.

Employee deferral, elective Roth contributions and loan payments must still be deposited to the Plan as before. There are no waivers or extensions on depositing any employee monies.

The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18, 2020. The FFCRA expands the Family Medical Leave Act and may also affect your employees.

For 401(k) Plans which also have Profit Sharing provisions, the maximum allocation for each participant will be $57,000. This includes 401(k) deferral, matching and forfeitures allocated. The catch-up contribution is over and above for a maximum of $63,500 for those aged 50 or older.

Participants in a SIMPLE IRA will be able to contribute up to $13,500, and, if age 50 or older, an additional $3,000 in catch-up contributions.

IRA contribution limits will be unchanged. The maximum deductible IRA contribution will be $6,000, and, if age 50 or older, an additional $1,000 in catch-up contributions.

The Social Security Taxable Wage Base will increase to $137,700.

The IRS has announced the retirement plan limitations for 2019.  Limitations which apply to Pension Plans (including Profit Sharing and 401(k) Plans) for the Year 2019 are:

For clients with 401(k) and Profit Sharing Plans, the “maximum annual addition” to any participant for combined plans is $56,000 (increased from $55,000).  Maximum annual additions do not include Catch-up Contributions.

The proposed regulations include revisions to the rules for determining if the distribution is necessary to satisfy an immediate and heavy financial burden by eliminating:

1. The requirement that employees be suspended for 6 months from making salary deferral contributions; and
2. The requirement that employees take plan loans prior to obtaining a hardship distribution.

The facts and circumstances determination of financial need has been eliminated.  There is now one general standard provided under which the hardship distribution may not exceed the amount needed to satisfy the financial burden, including amounts needed to pay any income taxes or penalties.  Employees must take any other available distributions before taking a hardship distribution.

The proposed regulations also expand the money sources available for hardship distributions.  Hardship distributions may be taken from Salary Deferral, QNEC, QMAC and Safe Harbor Matching, as well as earnings on these amounts.

For more information, go to https://www.federalregister.gov/documents/2018/11/14/2018-24812/hardship-distributions-of-elective-contributions-qualified-matching-contributions-qualified