New year, new limits. Earlier this month, the IRS published its long-awaited updates to 401(k) and IRA contribution limits for 2019.
Because retirement plans can be funded on a pretax basis (meaning deductions are taken from employee paychecks before taxes like social security), the IRS limits how much employees can contribute to them annually. These limits are subject to a periodic review to account for changes in the cost of living, inflation, and other factors.
The table below represents the updates most relevant to HR professionals. Payroll and finance teams will want to consult IRS notice IR-2018-83 for additional guidance.
Retirement Plan Contribution Limits for 2019
"Catch Up" Contribution Limit
$19,000 ($500 Increase)
+ $6,000 (No Change)
$6,000 ($500 Increase)
+ $1,000 (No Change)
All of the above changes go into effect on January 1. Note that individuals age 50 or older are permitted to contribute slightly more to their 401(k) and IRA plans. These "catch up contributions" are not tied to inflation or the cost of living, and require legislative action to update.
While these limits are on the rise, that doesn't necessarily mean individuals will be contributing more in 2019. One industry study found that only 13 percent of employees saving for retirement come close to the annual maximum. It also found that just 14 percent of savers over 50 were able to take advantage of catch up contributions.
HR teams who work with an outside payroll provider or professional employer organization should reach out to their respective contacts to confirm that the correct limits are in place for 2019.
The content of this publication is provided for informational purposes only and does not contain or constitute tax or legal advice. You should not act on this information without seeking tax or legal professional counsel.