The Internal Revenue Service announced cost of living adjustments that will raise the maximum contribution amounts for most retirement plans. This is good news for retirement savers and the first time it has happened since 2013. The higher contribution limits provide the possibility for more tax-advantaged saving in retirement accounts.
The annual contribution limit on IRAs will increase from $5,500 in 2018 to $6,000 for 2019. The additional $1,000 catch-up contribution limit for individuals age 50 and older remains unchanged, so those age 50 and older may contribute as much as $7,000 into an IRA in 2019.
Employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will be able to save $19,000 per year in 2019, up from $18,500 in 2018. The catch-up contribution limit for employees age 50 and over who participate in these types of retirement plans remains unchanged at $6,000.
The contribution limit for SIMPLE IRA and SIMPLE 401(k) plans will also go up by $500 from $12,500 in 2018 to $13,000 in 2019. For those age 50 or over, the catch-up contribution limit stays the same at $3,000. Employer contributions are not included in these limits.
The SEP IRA contribution limit will increase by $1,000 in 2019, from $55,000 to $56,000. With SEP IRAs, the employer makes the contribution, which cannot exceed the lesser of 25% of compensation or $56,000 for 2019.
The income ranges for determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs, and to claim the saver’s credit all increase for 2019. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the IRA phase-out ranges for 2019:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.
For more information on these updates by the IRS, please see this article. We encourage you to speak with your CPA or tax adviser with questions specific to your situation.
Our team is excited about these increased contribution limits because they make retirement saving even more powerful over time. As always, we look forward to helping you plan and invest for retirement.