It’s the day we all been waiting for. No, not Halloween. I mean the day every year that the IRS raises the contribution levels for pension and retirement plans.
That’s today treat. Except that the IRS did not increase the amount that an employer can tax-defer into his or her 401(k) plan, 403(b) or government 457 plans. Instead, it kept the figure at $17,500–the same as 2013. Why? Because, IRS said, the consumer price index hasn’t gone up enough to warrant an inflation boost in the deferral rate.
But wait- there’s another treat from IRS today. It issued Revenue Procedure 2013-35, in which it ruled for the first time that employees with leftover money in their flexible spending accounts can carry over up to $500 into the next year. It’s no longer strictly “use-or-lose” on those accounts.
Which means employees lucky enough to have a balance in their account in December won’t have to scramble to purchase those extra sunglasses in order to make sure their balance is zero for the new year.
But the trick is that the employer has to amend its plan document to give employees the freedom to carry over money into the new plan year.
Here’s the IRS COLA announcement and Revenue Procedure 2013-35.