By: Claudia Allen
While Congress has not acted on any of the myriad proposals to increase opportunities for retirement savings, the Internal Revenue Service has announced that it will allow a bit more to be deposited into existing plans in 2019.
Next year, contribution limits for salary deferrals in into 401(k), 403(b) and 457(b) plans will increase from $18,500 to $19,000. Catch-up contributions (allowing participants age 50 or over to contribute an additional amount to 401(k) and 403(b) plans and Governmental 457(b) plans) remain limited to $6,000.
If you contribute to a traditional IRA, the amount is limited and the deductibility of your contribution is determined by your income and whether you are an active participant in an employer’s qualified plan. The deduction limit will be $6,000 in 2019. Individuals who are not active participants in a retirement plan can deduct the full amount unless their spouses are covered participants. In that case, the non-participant spouse will see the deduction phased out beginning at joint income of $193,000.
The IRA deduction for an active participant who is single begins phasing out at $64,000 of income; the deduction for active participants who are married and filing jointly will be phased out when compensation reaches $103,000 or more. Married participants filing separately cannot deduct IRA contributions unless their income is under $10,000.
Contributions to Roth IRA –IRAs that are funded with after-tax dollars, but are potentially distributable tax-free –are limited to those whose compensation is under certain limits. For singles, the limit is phased out when income is between $122,000 and $137,000. For those married filing jointly, the phase out applies to income between $193,000 and $203,000.
Saver’s Credit limits have increased depending on the individual’s filing status: the credit is available if income is under $64,000 (married filing jointly), under $48,000 (head of household) or under $32,000 (single or separate filer).
Employers will be interested in knowing that the overall contribution limit to “defined contribution” plans –generally profit sharing plans or ESOPs – is increased to $56,000 from $55,000. Also, the compensation cap on the amount that can be taken into consideration when making plan contributions will increase to $225,000. Employees will be considered “Highly Compensated” for nondiscrimination purposes when they make $125,000 or more.
These are just highlights of the IRS pronouncement. For more detailed information, or help with how these rules apply, please contact Claudia Allen at email@example.com.