January is not only a time for new resolutions, its also a great time to visit your retirement savings strategy to see if you are on track and to implement any necessary updates to ensure you are taking full-advantage of annual contribution limits.
With the IRS rushing to interpret and implement hundreds of pages of changes to the recently changed tax code, here are some of the highlights affecting your ability to save and defer taxes in your employer-sponsored retirement plan or IRAs for 2018.
401(k), 403(b), 457, Thrift Savings Program
For employees who participate in these employer-sponsored plans, the annual contribution limit has increased from $18,000 to $18,500. The additional catch-up contribution, for individuals aged 50 and over, remains at $6,000, for a total maximum available 2018 contribution of $24,500.
***IF you participate in a government sponsored 457 plan, and are within three years of your normal retirement age, you most likely qualify for a special catch up provision that allows you contribute up to double the limit for the years leading up to retirement*** Contact your human resources department for details.
Traditional and Roth IRA
The annual contribution limit for both Traditional and Roth IRA remains unchanged at $5,500. The additional catch-up contribution individuals aged 50 and over remains at $1,000, for a total maximum 2018 contribution of $6,500. However, the annual income limits have been updated.
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 retirement plan through work, the deduction may be reduced, or phased out, until it is eliminated. (If neither spouse is covered by a workplace retirement plan, the phase-outs of the deduction do not apply).
- For single taxpayers (covered by a workplace plan) the phase-out range is $63,000 to $73,000 (up from $62,000 to $72,000)
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, phase-out range is $101,000 to $121,000 (up from $99,000 to $119,000).
- For married couples, where the spouse making the IRA contribution 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 $189,000 and $199,000 (up from $186,000 and $196,000).
The income phase-out range for taxpayers making contributions to a Roth IRA is $120,000 to $135,000 for singles and head of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000.
There are additional changes to sections of the Internal Revenue Code which may affect your defined contribution, defined benefit, and small business employer sponsored retirement plans, see link above for more details. IRS Announces Changes for 2018