IRS sets retirement plan contribution limits

WASHINGTON--The limits on contributions to defined contribution plans and the amount of benefits that can be funded through defined benefit pension plans will increase in 2007, the Internal Revenue Service announced Wednesday.

Among the increases, the maximum employee salary deferral to a 401(k) plan will rise to $15,500 in 2007, up from $15,000 in 2006.

Additionally, the maximum total contribution, including employer contributions, to defined contribution plans will rise to $45,000 per participant from $44,000.

The maximum annual benefit that can be funded through a defined benefit plan will increase to $180,000 from $175,000, while the amount of employee compensation that can be considered in calculating pension benefits and contributions to defined contribution plans will rise to $225,000 from $220,000.

However, the maximum annual so-called catch-up contribution that employees age 50 and older can make to 401(k) and certain other defined contribution plans will remain at $5,000, while the definition of a highly compensated employee for 401(k) plan non-discrimination testing purposes will continue to be one earning at least $100,000 a year.

The 2007 limits, which use a methodology set by federal law, reflect increases in the cost of living.