Each year, the Treasury Department examines the cost of living in the U.S. and adjusts limitations for retirement plans and many other similar items that affect taxpayers throughout the U.S. As has happened previously, the Treasury raised the limits for contributions to pensions and other retirement plans such as 401(k)s, 403(b)s and most 457 plans. All of this helps today’s workers save for retirement with pre-tax dollars, which is a tremendous benefit.
Our tax code requires the Secretary of the Treasury to make this adjustment.
The biggest news is that the contribution limit to employer-sponsored retirement plans, such as the above-mentioned 401(k)s, etc., has gone from $18,000 for calendar 2017 to $18,500 for calendar 2018. If you were bumping up against this limit in 2017, you can now adjust and put in just a little bit more, which is always good news.
IRA contribution limits
If you contribute to a traditional IRA, there are new phase-out limitations for those who are covered by a retirement plan at work. Essentially, those limits have shifted upwards by $1,000 for single taxpayers and $2,000 for married taxpayers filing jointly. For someone who is contributing to a traditional IRA who is not covered by a workplace plan but whose spouse is, the deduction is phased out if the couple makes between $189,000 and $199,000. This limit is $3,000 higher than previously.
Roth IRAs are those retirement vehicles that allow your after-tax income to grow (and then come out) tax-free – and even those making a substantial income can still use this retirement savings vehicle. Contributions are not pre-tax, but when you take the money out, you won’t pay any taxes on it or the income generated. The income phase-out range for heads of households and single individuals is $120,000 to $135,000, up $2,000 from previously. For married couples, the phase out is $189,000 to $199,000, up $3,000 on each end of the range.
Numbers valid for 2018
Keep in mind, this is all for the 2018 tax year, so this doesn’t affect this year or the tax returns you’ll file in April 2018. But as you make your plans for yourself, your company and your employees, these are good numbers to know. There are some good adjustments here, but nothing substantial.
It’s important to note that saving for retirement tax-free is nice, but it’s not the only way to get things done. If you need to save more than what’s allowed in tax-free methods, absolutely do so. Tax-free benefits are nice – but not the only reason to save.
If you have bigger tax concerns, from business succession planning to other estate planning needs, please let us help. You can reach out to me, Nathan Vinson, attorney, at (270) 781-6500 or firstname.lastname@example.org.