New Year, New Retirement Plan Limits
Get ready to save more in your retirement plan and IRAs in 2019! The Treasury Department has adjusted how much you can contribute to your employer sponsored retirement plan and Individual Retirement Accounts (IRAs). For 2019, they are now as follows:
Individual Retirement Accounts (IRAs) and Roth IRAs: After being stagnant for six years at $5,500, you can now contribute $6,000 to Individual Retirement Accounts for 2019. If you are over the age of 50 by 12/31/2019, you can add a “catch up contribution” of $1,000, meaning you can save $7,000 in an IRA for 2019. Remember that 2018 contributions can be made until 4/15/2019. The deductibility of an IRA is phased out for single and head of household income tax filing status who are covered by an employer sponsored retirement plan and have modified adjusted gross incomes (MAGI) between $64,000 and $74,000. For married filing jointly income tax filing status the phase out covers income ranging from $103,000 to $123,000 if a spouse who makes the IRA contribution is covered by an employer sponsored retirement plan. If the IRA contributor is not covered by an employer sponsored retirement plan but they are married to someone who is, the income phase out for deductibility is between $193,000 and $203,000. The phase out range for making Roth IRA contributions is $193,000 to $203,000 to couples married filing jointly, and for singles and head of household the phase out range is $122,000 to $137,000. If you earn too much to contribute to a Roth IRA, you can make a non-deductible IRA contribution and convert it to a Roth IRA, which is often called a “backdoor Roth IRA contribution”.
401(k)s, 403(b)s, most 457 Plans, and the federal government’s Thrift Savings Plan: You can now save $19,000 in these plans for 2019, which is $500 more than in 2018. If you are age 50 or older by 12/31/2019 you can save an additional $6,000 in these plans for 2019, bringing your maximum contribution to $25,000.
SEP IRAs and Solo 401(k)s: If you are self-employed or a small business owner, you can now save $56,000 in these plans for 2019. This is the amount you can contribute as an employer as a percentage of your salary. The compensation limit used in the savings calculation is now $280,000 for 2019.
After-tax 401(k) contributions: If your employer allows after-tax contributions, you can also take advantage of the $56,000 limit for 2019. It is an overall cap that includes your pretax or Roth salary deferrals plus any employer contributions (but does not include catch-up contributions if you will be 50 or older on 12/31/2019).
SIMPLE IRA: The limit on these accounts is now $13,000 for 2019. The catch-up contribution for those of you who will be 50 or over on 12/31/2019 is $3,000, bringing the total contribution for 2019 to $16,000.
Defined Benefit Plans: The limit on the annual benefit of a Defined Benefit Plan is $225,000 for 2019.
Saver’s Credit: The income limit for the saver’s credit is $64,000 for married filing jointly, $48,000 for head of household, and $32,000 for singles and married filing separately.
Qualified Longevity Annuity Contract (QLACs): The dollar limit on the amount of your IRA or employer sponsored retirement plan that you can invest in a QLAC for 2019 is $130,000, unchanged from 2018.
Due to the complicated rules around all of the above, LTWM highly recommends seeking the advice of a qualified income tax professional such as a CPA or Enrolled Agent (EA). As always, please contact your Lake Tahoe Wealth Management Financial Planner to discuss the optimal method for saving for your future or if you have any questions.
