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THIS EMAIL IS INTENDED FOR ONLY U.S.-QUALIFIED PLANS. THIS IS NOT APPLICABLE FOR PLANS QUALIFIED ONLY IN PUERTO RICO.
Dear Client/Partner,
As our valued client, Pension Services, Inc. always strives to provide you with the best plan designs and with compliance that has been recognized by IRS, as well excellent service. As such, please review the following information in this e-mail carefully so that you may plan accordingly for 2025.
For our clients and advisors with qualified retirement plans maintained in the mainland U.S.A., the Internal Revenue Service (IRS) announced recently the contribution limits for retirement plan participants for 2025. In this regard, please note the following:
- 💰 The elective deferral contribution limit for employees who participate in 401(k) and/or 403(b) plans increases to $23,500. If your intentions are to maximize contributions, please make sure to update your payroll records for the appropriate period.
- 👤 The catch-up contribution limit for employees aged 50 and over who participate in 401(k) and/or 403(b) plans remains at $7,500. Additionally, for employees who attain age 60, 61, 62, or 63 in 2025, the catch-up contribution limit is $11,250.
- 📈 The 415 limit on total contributions to a defined contribution plan increases to $70,000. This amount consists of the total of both employer and employee contributions. For employees who are at least age 50 and who participate in a 401(k) plan and/or a 403(b) plan, this amount increases accordingly with the catch-up amounts.
- 📅 The 415 limit on total benefits that may be provided in a defined benefit plan on an annual basis increases to $280,000.
- 💵 The annual compensation limit for plan purposes increases to $350,000.
- 👤 The limitation used to determine who is a highly compensated employee increases to $160,000. Thus, an employee who earns more than $160,000 in 2025 will be considered a highly compensated employee in 2026.
Action Item List 2025
| Item |
Limit |
| 401(k) Elective Deferral Contribution (IRC Sec. 402(g)) |
$23,500 |
| Retirement Plan Catch-Up Contribution Limit (Age 50+) |
$7,500 |
| Catch-Up Contribution Limit for Ages 60-63 |
$11,250 |
| 415 Limit (Annual Additions Limit) |
$70,000 |
| Defined Benefit Limit |
$280,000 |
| Annual Compensation Cap |
$350,000 |
| Highly Compensated Employee Threshold |
$160,000 |
Maximize Owners’ Tax Deductions & Administer your plan in compliance with the Law
Other Deadlines
As you may be aware, our firm specializes in designing and administering customized retirement plans that are suited to maximize contributions and tax deductions to benefit owners/key employees.
Contrary to what many believe, there is no “one-size-fits-all” retirement plan. Every employer has a different company structure than the next. The one-size-fits-all strategy is suited for a “cookie-cutter” environment and not beneficial for the owner and key employees. Our prowess is in working directly with our clients to provide a custom design which best fits their needs and company structure. We utilize all areas of the Internal Revenue Code sections in order to design the best available plan tailored to your (or your client’s) specific retirement needs and goals.
Our plan design options include defined benefit, cash balance, 401(k) only, 401(k) combined with profit sharing, defined benefit/cash balance combined with 401(k) profit sharing plans, etc. Our 401(k) designs generally include a safe harbor provision which, depending on the design, allows the key employees to defer at the maximum level.
You should note that an employer who currently does not maintain a 401(k) plan can still establish a 401(k) plan for 2024 now and have designated employees maximize their contributions at the $69,000 limit (or, if at least age 50 in 2024, $76,500) for 2024. If you are interested in establishing a 401(k) plan for 2024 in order to maximize contributions, please contact us as soon as possible.
Below are some important deadlines for plan implementation (assuming the plan year is based on the calendar year):
Start-up Plans Deadlines
Start-up plans:
- Defined Benefit/Cash Balance/Profit Sharing Plans: For 2024, these plans can be started during 2024 or 2025, as long as the document is executed before the due date of the corporate tax return for 2024 (including extensions). For S Corps and Partnerships (or LLCs taxed as such), this is 3/15/2025 or 9/15/2025 (on extension). For C Corps and Sole Proprietorships (or LLCs taxed as such), this is 4/15/2025 or 10/15/2025 (on extension).
- Plans with Salary Deferrals: For 2024, the plan documents must be executed on or before 12/31/2024. This is because 401(k) salary deferrals must be reported on the W-2s.
- Safe Harbor Match 401(k) Plans: For 2025, you can start a Safe Harbor Match 401(k) plan so long as a Safe Harbor 30-day notice is sent out by 9/1/2025 and documents are executed by 10/1/2025. The plan would be effective 1/1/2025. If plan documents are executed earlier, the notice should be given as soon as possible before the first deferrals are withheld. These deadlines also apply if there is an existing profit-sharing plan with no 401(k) component and you wish to amend the plan to include a Safe Harbor Match provision.
Existing Plans
Existing plans:
- For 2024, 401(k) plans that do not have a Safe Harbor feature can be amended to include a Safe Harbor 3% Non-Elective feature as long as the necessary amendments are executed by 12/1/2024.
- After 12/1/2024, for 401(k) plans that do not have a Safe Harbor feature, you can add a Safe Harbor 4% Non-Elective feature as long as the necessary amendments are executed on or before 12/31/2025. In this case, the Safe Harbor 4% Non-Elective feature is applicable for the 2024 plan year. For subsequent plan years, the Safe Harbor 4% Non-Elective feature can be lowered to a Safe Harbor 3% Non-Elective.
- For 2025, you can amend the plan to include a Safe Harbor Match feature so long as a Safe Harbor 30-day notice is sent out by 12/1/2024. The legal documents must be executed by 12/31/2024. The feature would be effective 1/1/2025.
Deadline for Salary Deferrals
- Payroll Processing: Deadline to process payroll and record salary deferrals for the 2024 plan year is the last payroll before 12/31/2024.
- Deposit Deadlines:
- Large Plans (100 or more participants): Deposits must be made as soon as administratively feasible on or after the payroll date as of which the deferrals were deducted. Generally, this means that deferrals should be deposited within one or two days after the payroll date at the latest.
- Small Plans (fewer than 100 participants): Deposits are always considered timely if made within seven business days from the date contributions are withheld from employee wages.
Finally, we wanted to close by thanking you so very much for your business – we truly appreciate your ongoing confidence in our firm. It is important to us to ensure that our clients’ plans not only provide the best design for each plan sponsor, but also that all of our clients’ plans continue to satisfy Internal Revenue Service and Department of Labor rules. In fact, our firm has been recognized by the IRS for our compliance efforts. Our reports are being used to train Revenue agents in compliance matters. This is because bundled providers and most TPAs pass the burden of compliance to the plan sponsor by not preparing trust accounting and by not verifying employee census information. While they provide sponsors with reduced services (at the expense of qualification and penalties), we remain proud of our extremely strong dedication to compliance for all of our clients and their retirement plans.
If you have any questions or comments, please do not hesitate to contact us.
3150 SW 38th Ave Suite 900
Miami, FL 33146
Phone: 305-595-5500
Website: www.pensionnetwork.net
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