IRS Announces Cost of Living Adjustments (COLA)

The IRS announced cost of living adjustments (COLA) for 2018. This affects donation limits for pension plans and retirement-related items for tax year 2018.

Nov 13, 2017

Recently, the Internal Revenue Service announced the cost of living adjustments (COLA) for 2018. This affects deferral and contribution limits for defined contribution plans and other retirement and benefit-plan related items for tax year 2018.

Congress bestows these tax breaks to encourage retirement savings, and the COLA offers employees a little extra room to set aside more for the future.

For example, for the past three years, $18,000 has been the maximum amount that employees can contribute to their 401(k) plans.

In 2018 that moves up to $18,500. A modest increase, but after three years of a flat maximum seeing any increase will be welcome news for those who want to get the most out of their 401(k).

In addition to the 401(k) limits increase, there are increases to income phase-outs for IRA contributors, and to the adjusted gross income limits for snagging the saver’s credit.

A few additional changes for 2018 include:

  • The overall defined contribution plan moves up to $55,000. This can serve as an assist for those who are self-employed, small business owners, and employees who have the option of increasing their retirement savings with after tax dollars.
  • Employees can divert $5,000 more (up to $130,000) of their IRA or 401(k) to qualified longevity annuity contracts (QLACs), which provide guaranteed retirement income for life.

To read a more detailed breakdown of the changes for 2018, you can read our BPAS Roadways Traffic Report.