The IRS has announced some increases to pension plan contribution limits for 2018 that may affect your contributions. While it’s great news that you will be able to contribute more to your savings funds in 2018, it’s important to understand the limitations so that you are not penalized. Keep in mind that these changes will go into effect in 2018 and do not have any bearing on your contributions for 2017.
First, it’s important to know that some limits remain unchanged:
* Annual contribution limits to an IRA fund continue to be $5,500. Anyone 50 and over can contribute an extra $1,000 per year as a catch-up contribution.
* In relation to employees 50 and over who contribute to a 401(k), 403(b), 457 plan or a Thrift Savings Plan from the government, the limit remains at $6,000 per year.
As for changes in contributions for 2018, there are a few highlights to keep in mind:
* If you participate in a 401(k), 403(b), 457 or Thrift Savings Plan at work, your contribution limit has been raised from $18,000 to $18,500.
* Income ranges to determine eligibility for deductible contributions to IRA’s have all increased. You can deduct your contributions to a traditional IRA if you meet certain requirements. If you or your spouse was covered by a retirement plan through your workplace during the year, the allowable deduction may be reduced or even phased out until it is eliminated. This is based on your filing status and income. Here are the phase out ranges to be aware of:
- If you’re single and have a workplace retirement plan – the phase out range is now $63,000 to $73,000. Previously it was $62,000 to $72,000.
- If you’re married and filing jointly and your spouse is making an IRA contribution through his or her workplace – the phase out range is now $101,000 to $121,000. Previously it was $99,000 to $119,000.
- If you do not have a workplace retirement plan but you are married to someone who does – the phase out range is based on your total income as a couple and it is now $189,000 to $199,000, up from $186,000 to $196,000.
- And if you are married but your filing separately and you are covered by a workplace retirement plan – the phase out range is not subject to the annual cost-of-living increase so your phase out range remains $0 to $10,000.
* The phase out range for contributions to a Roth IRA is now $120,000 to $135,000 for singles and heads of household. Married couples filing jointly have a phase out range of $189,000 to $199,000. And again, if you’re married filing separately, your phase out range remains the same, $0 to $10,000.
* Lastly, the income limit for Saver’s Credit (otherwise known as the Retirement Savings Contributions Credit) for low and moderate income works is now $63,000 for married couples filing jointly, $47,250 for heads of household, and $31,500 for singles and married people filing separately.
Making contributions within your limits so that you’re not penalized can be confusing. Make sure you understand the tax laws or talk to someone who does so that you don’t end up paying more taxes than need be due to improper contributions.