IRS Increases Retirement Contribution Limits

IRS Ups the Ante on Retirement Contributions

Every year, the IRS releases cost-of-living adjustments to qualified retirement plan amounts. For tax year 2019, many of the limits applicable to pensions and other retirement plans will increase. But some will remain unchanged from 2018.

Annual Adjustments

The following limits will increase for 2019 based on the cost of living:

  • The elective deferral limit for employees participating in 401(k), 403(b) and most 457 plans will go up from $18,500 to $19,000.
  • The limit on annual contributions to an IRA, which last increased in 2013, will go up from $5,500 to $6,000.
  • The maximum amount of compensation an employee may elect to defer for a SIMPLE plan will increase from $12,500 to $13,000.
  • The benefit limit for defined benefit plans will increase from $220,000 to $225,000.
  • The defined contribution plan limit will go up from $55,000 to $56,000.

In addition, 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 will all increase for 2019.

Amounts that will remain unchanged for 2019 include: 1) the additional catch-up contributions for individuals aged 50 or over, and 2) the compensation limit to participate in an employer’s simplified employee pension (SEP) plan.

Close-Up on IRAs

Can you deduct contributions to a traditional IRA? If during the year either you (or your spouse) are covered by an employer-provided retirement plan, the deduction may be gradually phased out, depending on your filing status and income. For 2019, the phase-out ranges will be:

  • $64,000 to $74,000 for single people covered by a workplace retirement plan (up from $63,000 to $73,000 in 2018),
  • $103,000 to $123,000 for married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan (up from $101,000 to $121,000 in 2018),
  • $193,000 and $203,000 for an IRA contributor who isn’t covered by a workplace retirement plan and is married to someone who’s covered by a workplace retirement plan (up from $189,000 and $199,000 in 2018),
  • $0 to $10,000 for a married individual filing a separate return who’s covered by a workplace retirement plan. (This amount isn’t adjusted annually for cost-of-living changes.)

What about Roth IRAs? The income phase-out range for taxpayers making contributions to a Roth IRA will be $122,000 to $137,000 for single people and heads of household (up from $120,000 to $135,000 in 2018). For married couples filing jointly, the income phase-out range will be $193,000 to $203,000 (up from $189,000 to $199,000 in 2018). The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA will remain $0 to $10,000.

Extra Time to Make Certain Retirement Contributions for 2018

If you qualify, you can make a 2018 deductible contribution to a traditional IRA right up until the April 15, 2019, filing date and still benefit from the resulting tax savings on your 2018 return. You also have until April 15, 2019, to make a contribution to a Roth IRA for 2018. However, contributions to Roth IRAs are not deductible.

Likewise, small business owners can set up and contribute to a Simplified Employee Pension (SEP) plan up until the due date for their returns, including extensions.

Be aware, however, that the 2018 contribution limits and phase-out amounts apply for contributions made for the 2018 tax year — even if you wait until 2019 to make them.

Questions?

Saving for retirement is an important part of your long-term financial planning strategy. For more information on contributing to a tax-favored retirement savings tax, contact your Brady Ware advisor.

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