As expected, many benefits-related limits will increase in 2007 from their 2006 levels due to inflation indexing. The same is true for dollar amounts relevant to Social Security and Medicare benefits. Another important development is that in 2007 Medicare Part B premiums will be income- tested for the first time.
Benefit Plan Amounts
The annual limit on the compensation a qualified retirement plan may consider for each participant will increase from $220,000 to $225,000. The maximum amount a defined benefit plan may annually pay to a participant will increase from $175,000 to $180,000. Defined contribution plans, of course, have no limits on annual payouts, but the maximum annual addition to a participant’s accounts rises to $45,000 in 2007.
Section 402(g)’s limit on elective deferrals by an employee will increase from $15,000 to $15,500. The maximum contributions to a SIMPLE plan will increase from $10,000 to $10,500, while the maximum IRA contribution (whether made to a regular or Roth IRA) will remain at $4,000.
The limits on “catch-up contributions” will not increase in 2007. Employees age 50 or older who are eligible to make these contributions may contribute an additional $5,000 to their 401(k), 403(b), or governmental 457(b) plan; an additional $2,500 to a SIMPLE plan; and an additional $1,000 to an IRA.
The compensation threshold for identifying “highly compensated employees” will remain at $100,000 for 2007. The 2007 threshold will be used to perform non-discrimination testing for the 2008 plan year. For most employers, that testing will occur in early 2009. The threshold at which an officer is deemed to be a “key employee,” however, will increase in 2007 from $140,000 to $145,000.
Social Security and Medicare Amounts
The Social Security cost of living adjustment in 2007 will be 3.3 percent. Individuals receiving Social Security retirement benefits prior to their Social Security retirement age may earn up to $12,960 in 2007 without reducing their benefit. If 2007 is the year an individual attains his or her Social Security retirement age, that individual may earn up to $2,870 per month without a benefit reduction. The wage base subject to Social Security taxes will increase from $94,200 to $97,500.
The Medicare Part A inpatient hospital deductible will rise from $952 to $992, while the Medicare Part B deductible will increase from $124 to $131.
For the first time, the monthly premium for Part B will vary based on income. In 2006, all Part B beneficiaries paid $88.50 per month. The 2007 premiums are divided into five brackets that range from $93.50 up to $161.40. For most unmarried beneficiaries, the cut-off point for the lowest premium is $80,000 of annual income, while only those having annual income in excess of $200,000 will pay the highest rate. The income brackets can vary, however, based on marital status and other factors.