IRS Updates 2018 Publication 560 – Retirement Plans for Small Business

On Jan. 24, 2019, the IRS issued Publication 560 to help employers prepare the 2018 returns for certain small business retirement plans, including SEP (simplified employee pension plans), SIMPLE (savings incentive match plan for employees), and qualified plans (including 401(k) plans). This publication contains information for employers to understand what types of plans may be best for them to set up, how to set up such a plan, the allowable contributions under each plan, how much of the contribution is deductible, and how to report information about the plan to the IRS and to employees.

For 2018, there are several notable changes to the hardship distribution rules for 401(k) plans. Most significantly, the Bipartisan Budget Act of 2018 changed the hardship distribution rules to:

  1. Remove the 6-month prohibition on contributions following a hardship distribution
  2. Allow hardship distributions to be made from contributions, earnings on contributions and employer contributions
  3. Eliminate any requirement to take plan loans prior to taking a hardship distribution

These updates apply to plan years beginning after Dec. 31, 2018.

The publication also highlights the following updates:

  • Compensation limits. The maximum compensation used for figuring contributions and benefits in 2018 is $275,000 (and $280,000 for 2019).
  • Elective deferral limits. Elective deferral limits for SARSEPs, 401(k) plans (excluding SIMPLE plans), 403(b) plans and 457(b) plans is $18,500 in 2018 and $19,000 for 2019 (not including catch-up contributions).
  • Defined Contribution limits. The contribution limit for a participant in a defined contribution plan is $55,000 for 2018 and $56,000 in 2019 (not including catch-up contributions).
  • Defined benefit limits. Annual participant limits in a defined benefit plan is $220,000 for 2018 and $225,000 for 2019.
  • SIMPLE plan salary reduction limit. The salary reduction contribution limit is $12,500 for 2018 and $13,000 for 2019 (not including catch-up contributions).
  • Catch-up contribution limits. Participants who are 50 years old or older may be permitted to make additional catch-up contributions of up to $6,000 for 2018 and 2019. The catch-up contribution for SIMPLE plans is $3,000 for 2018 and 2019.

Certain retirement plans may also extend certain tax relief to employees and their family members who live or work in disaster areas affected by Hurricane Michael or Florence, if made by March 15, 2019.

Please note that this document does not contain all of the details necessary to create and maintain these plans. Employers should consult with their advisers or legal counsel to ensure they are set up and administered properly.

IRS 2018 Publication 560 »