IRS Contribution Limit Changes for 2018

What do these changes mean for you and your retirement savings plan?

Lynda Tull, Associate Advisor

The IRS has announced new contribution limits for retirement savings accounts which include 401K, 403B, and most 456 plans. Changes to income limits for IRA contribution deductibility and new contribution limits for Health Savings Accounts (HSAs) have also been announced.

So what do these changes mean for you?

  • If you are an employee who participates in 401(k), 403(B), most 457 plans, and the federal government’s Thrift Savings Plan you can increase your contributions by $500. (New limit is $18,500 for people under 50. Over 50 limit is $24,500 including catch-up contributions.)
  • If you are covered by a workplace retirement plan, the IRA deductions phase-outs will change. A phase out is a gradual reduction of a tax deduction based on your adjusted gross income. Once you hit the top of the phase out bracket, you do not get any deduction on your tax return.
    • New phase-out brackets
      •  Single taxpayer- $63,000-$73,000
      • Married File Jointly (MFJ) $101,000-$121,000
      • Couple where the contributor is not covered by plan, but spouse is- $189,000-$199,000
    • If you have a Roth IRA, contribution phase-out’s will now be:
      • Single and Head of Household- $120,000-$135,000
      • MFJ- $189,000-$199,000
    • The new Saver’s Credit Income limit will be:
      •  MFJ- $63,000
      •  Head of Household- $46,500
      •  Single- $31,500

Naturally, there are pros and cons to these changes…

  • Pros include: Potential for more retirement savings and tax deferral.
  • Cons include: Inflation (Cost of living adjustments) has been on a constant rise, which caused the increase in limits. However, the interest rates have stayed low.

What should you consider in terms of how these changes will affect your bottom line and savings goals?

  •  Personal cash flow… can you afford the extra contribution of $500 per year?
  • Catch-up contributions…If you are turning 50, can you afford the extra $6,000 per year in catch-up contributions? If so, you should have a discussion with your Advisor to determine if taking advantage of the increased catch-up contribution limits is in fact a strategy you should implement to achieve your savings goals.
  • What other retirement saving options are available? In light of these changes, should you reevaluate your current savings strategy? Are you using these plans to their maximum benefits? Are there other options you should consider?

When it comes to employing a strategic retirement savings plan, there are a lot of things to consider and a lot of different options you should regularly evaluate in order to insure that you’re putting your money to work for you in the most effective way. If you have questions about whether or not your current strategy is in fact the best path forward for you, please don’t hesitate to contact us.  We would be happy to review your personal situation and evaluate your options in light of these recent changes from the IRS.

 

By | 2017-11-21T14:32:48+00:00 November 17th, 2017|Family, Financial Planning, Retirement, Tax Planning & Preparation|