Be Prepared for 401K and IRA Contribution Limit Changes

Be Prepared for 401K and IRA Contribution Limit Changes

Harry P. Wills III, CPA, CGMA, Partner
Posted by Harry P. Wills III, CPA, CGMA, Partner on Dec 4, 2018 10:00:00 AM

RetirementContribution limits for 401Ks and IRAs are changing for the 2019 tax year, according to the Internal Revenue Service. These are considered cost of living adjustments, and they affect the dollar limitations for pension plans and other retirement-related items. Here are the most important changes that you need to know about, both as an employer and an employee:

Highlights of Changes for 2019

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has been increased from $18,500 to $19,000.

The limit on annual contributions to an IRA has been increased from $5,500 to $6,000. This was last increased in 2013. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all have been increased 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 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 has changed as well. Those changes are as follows;

  • $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 as follows:

  • $64,000 for married couples filing jointly, up from $63,000
  • $48,000 for heads of household, up from $47,250
  • $32,000 for singles and married individuals filing separately, up from $31,500.

Highlights of Limitations that Remain Unchanged from 2018

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

 

Topics: Construction, Funeral Homes, Not-for-Profits, Government Entities, For-Profit Entities