By Vince Nardi
If you are an employee who participates in a retirement savings plan, you will have some additional opportunities to put away more funds in 2019. The IRS recently announced cost-of-living adjustments that will raise the limits on contributions that individuals are permitted to make to qualified retirement plans.1 Read on to learn how you can take advantage of these retirement account rule changes in 2019.
Increased Contribution Limits
The contribution limit has increased from $18,500 to $19,000 for employees with a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. If you are already maxing out your retirement account, this amounts to an extra $42 per month in deferrals. Note that catch-up contribution limits of $6,000 annually for employees age 50 and older did not change for any of these plans.
The annual IRA contributions limit increased to $6,000 from $5,500. This extra $500 invested will compound over time, making contributions for younger savers especially valuable. The catch-up contribution limit for individuals age 50 and older stays at $1,000.
Traditional IRA Income Cutoffs for 2019
Workers who do not have access to a 401(k) or similar employer retirement plan can contribute to a tax-deductible IRA no matter how much they earn. Employees who already participate in an employer-sponsored plan can also make contributions to these accounts, but the available tax deduction may be reduced or phased out depending on their filing status.
- For single taxpayers covered by a plan who want to deduct their IRA contribution, the phase-out range is $64,000 to $74,000. If income is greater than $74,000, the IRA contribution will not be tax deductible.
- For married couples filing jointly, the phase-out range has been increased to $103,000 to $123,000. This range applies when the spouse contributing to the IRA is covered by a workplace plan. If income is greater than $123,000, the IRA contribution will not be tax deductible.
- For married couples filing jointly, where a spouse is contributing to an IRA but is not covered by a workplace retirement plan although his or her spouse is covered by a workplace plan, the deduction is phased out if the couple’s income is between $193,000 and $203,000. If income is greater than $203,000, the IRA contribution will not be tax deductible.
Retirement Plan Contribution Increases
Tax Deduction Income Phase-Outs
* Either the taxpayer or a spouse is covered by a retirement plan at work.
|Income Phase-Outs Based on Filing Status*
|Married Filing Jointly (a)**
|Married Filing Jointly (b)***
|Married Filing Separately
** Married Filing Jointly (a): The spouse making the IRA contribution is covered by a workplace retirement plan.
*** Married Filing Jointly (b): The spouse who is not covered by a workplace retirement plan and is married to someone who is covered.
For taxpayers contributing to a Roth IRA and planning to file as single or head of household, the income phase-out range is $122,000 to $137,000. For married couples contributing to a Roth IRA who will file jointly, phase-outs have been increased to a range of $193,000 to $203,000.
Limits for self-employed plans have been increased as well. Simple IRA limits have been increased to $13,000. SEP IRA and Solo 401(k) contribution limits are increasing by $1,000 to $56,000.
||SEP IRA/Solo 401(k)*
* Maximum contributions allowed vary based on business income.
Even health savings accounts (HSAs) received a slight increase. Individuals with self-only coverage under a high-deductible plan can now contribute $3,500 to their HSA, up from $3,450. The annual limit for a family under a high-deductible health plan is now $7,000, up from $6,900.
For additional information, please refer to IRS publication IR-2018-211, “401(k) Contribution Limit Increases to $19,000 for 2019; IRA Limit Increases to $6,000.”
- “401(k) Contribution Limit Increases to $19,000 for 2019; IRA Limit Increases to $6,000.” IR-2018-211, November 1, 2018.
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