For people looking to grow their retirement nest egg, 2019 brings great news! The IRS announced increases to retirement plan contribution limits for 2019. If you are looking forward to retirement one day, this should be music to your ears. Whether you are looking to increase your contributions from prior years, or if you will be contributing to a retirement plan for the first time, you will want to familiarize yourself with these changes. Since the IRS isn’t exactly known for their prose and concise communication skills, we have put together this handy guide to help you understand how the announced changes affect you and your retirement savings.
EMPLOYER RETIREMENT PLANS
For employees participating in 401(k) plans, 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan, the contribution limit has increased to $19,000, up from $18,500 in previous years.
You may have already received a reminder from your employer to update your elections for the coming year. If so, don’t worry; it is not too late to make changes. You can still update your contributions throughout the year, though exact times will vary from employer to employer.
TRADITIONAL IRAs
If you contribute to a traditional pre-tax IRA, the amount of contributions that are deductible are based on three conditions: your tax filing status, the availability of a retirement plan through your workplace, and your household income. As your household income increases, the amount of your contributions which can be deducted will be reduced or phased out entirely. These are defined by “phase-out ranges.” This means if your income falls below the range, you can deduct your full IRA contributions. If your income is above the range, your IRA contributions are not deductible. If your income falls somewhere inside the range, only a percentage of your IRA contributions will qualify as tax-deductible. The good news is the following income ranges have all been increased for 2019, meaning you have a better chance of your contributions being deductible.
– If you are a single taxpayer covered by a workplace retirement plan, the new phase-out range is from $64,000-$74,000, up $1,000 from last year.
– If you are a married couple filing jointly where the spouse making the IRA contribution is covered by a workplace retirement plan, the new phase-out range is $103,000 to $123,000, up $2,000 from last year.
– If you contribute to an IRA and are not covered by a workplace retirement plan but are married to someone who is covered, the new phase-out range is between $193,000 and $203,000, up $4,000 from last year.
– If you are married but file separately and covered by a workplace retirement plan, the phase-out range has not changed and still sits at $0-$10,000.
– If neither the taxpayer or spouse is covered by a retirement plan at work, none of these phase-out deductions apply.
Separate from the phase-out ranges, if you are over the age of 50 and participate in catch-up contributions, those limits have remained unchanged at $6,000 for workplace retirement plans and $1,000 for IRAs.
ROTH IRAs
If you contribute to a Roth IRA instead of a traditional pre-tax IRA, there are income limits. To be eligible to contribute to a Roth, your income cannot exceed the phase-out ranges. If your income falls somewhere within the range, your contribution limits may be slightly lower. For single taxpayers and heads of households the phase out range is $122,000 to $137,000, up $2,000 from last year. For married couples filing jointly, the phase-out range is $193,000 to $203,000, a $4,000 increase from last year. If you are married and filing a separate return, the phase out range remains unchanged at $0 to $10,000.
SELF EMPLOYED & SMALL BUSINESS PLANS
For self-employed individuals and small business owners, the SEP-IRA or Individual 401(k) limits have also been raised to $56,000, up from $55,000 last year. The compensation limit used to calculate the amount you can contribute has also been raised to $280,000, up from $275,000 last year. If you have a SIMPLE retirement account, the contribution limit for 2019 has been raised to $13,000, up $500 from 2018.
No matter how you choose to save, you can put more towards retirement in 2019. With stable retirement a goal of countless Americans, these contribution limit changes are great news! Talk with your Marietta Wealth financial team today to build a plan for saving in 2019!