Saving for retirement is becoming more and more attractive with the new increased limitation announcements from the IRS. The new limits include a Cost-Of-Living Adjustment that works in the favor of taxpayers who are working to build their nest-eggs.
The IRS released updated employer limits for sponsored retirement plans, which covers 403(b), 457, 401(k) and Government Thrift Savings (TSP) plans. The annual contribution limit indexed to inflation was raised by $500 for 2018, which means that the maximum amount every employee will contribute on a pre-tax basis will be $18,500 in 2018, up from $18,000 in 2017.
All of the income ranges determining entitlement for making deductible contributions were also increased for 2018. These allow for making contributions to Roth IRAs, to traditional IRAs, and to claim saver’s credit.
PHASE-OUT INCREASE
For taxpayers to deduct contributions to a traditional IRA, they must meet certain conditions. Also, depending on income and filing status, deductions may be reduced or phased out until eliminated if the taxpayer or their significant other is covered by the retirement plan during the year. However, the phase-out of the deductions will not apply if neither the taxpayer nor their partner is covered.
For taxpayers that file as single the phase-out range increased from $62,000-$72,000 to $63,000-$73,000.
The phase-out range for married couples that are filing jointly increased from $99,000-$119,000 to $101,000-$121,000. This applies where the spouse is making IRA contribution that is covered by workplace retirement plan. In contrast, an IRA contributor married to someone not covered by a workplace retirement plan has their deduction phased out at the income rage of $186,000-$196,000. This is an increase from earlier years 189,000-$199,000.
A couple filing separate return covered by a workplace retirement plan, the phase-out range remains $0-$10,000 and is not subject to annual cost of living adjustment.
Taxpayers contributing to Roth IRA will have an income phase-out range of $120,000-$135,000 for heads of households and
singles, up from $118,000-$133,000. The income phase-out range for couples filing jointly is $189,000-$199,000, up from $186,000-$196,000. For married individuals contributing to a Roth IRA, their phase-out range remains $0 to $10,000 and is not subject to an annual cost of living adjustment.
For Savers Credit in low and moderate income range for married couples filing jointly is $63,000 up from $62,000; for heads of households is $47,250 up from $46,500; for married individuals filing separately and singles is $31,500 up from $31,000.
2017 LIMITATIONS THAT REMAIN
The annual contribution limit to an IRA is still unchanged at $5,500. The extra catch-up contribution limit for people over the age of 50 remains at $1,000 and is not subject to annual cost of living adjustment.
The limit for catch up contribution for employees who are over 50 years participating in the federal government Thrift Savings Plan, 403(b), 401(k), and most 457 plans remains at $6,000.
Keep an eye out for a future post containing more description and detail of changes and updates for 2018.
