Retirement plans for most of us are an important part of our estate plan. It may not be exciting but tax law changes to retirement plans can have a lasting and substantial affect on your retirement and estate planning. The IRS has announced 2018 retirement plan contribution limits and there are several changes taking place that may impact your 401(k), IRA, 403(b) or other tax-advantaged retirement savings plan. Please keep in mind that the limits discussed below are your elective deferral limits and not a limitation to other sources of retirement plan funding such as an employer’s contribution.
Retirement Plan Contribution Limits:
The IRS increased the 401(k) contribution limit to $18,500 for 2018. The new limits also apply to 403(b)s, the majority of 457 plans, and the federal government Thrift Savings Plan for 2018. However, the limit for catch-up contributions for employees 50 years and over is still $6,000, for a total annual contribution of $24,500.
SIMPLE IRA contribution limits for 2018 will remain the same at $12,500 with a catch-up elective deferral contribution of $3,000 for those 50 years or older.
IRA Contribution and Income Limits:
The IRA contribution limit is not changing in 2018. However, the income limits for Roth IRA contributions and the traditional IRA tax deduction are increasing.
The 2018 IRA contribution limit is the lessor of your earned income or $5,500, the same as it was in 2017. Please remember that you need to have “earned income” in order to contribute to an IRA. Earned income includes salaries, wages, tips, bonuses, or income from a business you operate. Income such as investment income and other passive sources don’t count as earned income. For example, if your earned income for 2018 is $4,000, that’s all you’re allowed to contribute to your IRA. The $1,000 catch-up contribution for savers age 50 and older remains the same. In other words, IRA owners who are 50 or older can contribute up to $6,500 to their IRA in 2018.
Please remember that the contribution limit is per person, not per account. You can have more than one IRA, but your contribution limit remains the same.
The IRS did increase the income levels used for determining eligibility to make deductible contributions to traditional IRAs, contribute to Roth IRAs and even to claim the Savers Tax Credit.
Single taxpayers who are eligible to participate in a workplace retirement plan are also eligible to make a tax-deductible contribution to an IRA if their adjusted gross income is below $63,000 ($101,000 for marrieds) in 2018. This is up from $62,000 (single) and $99,000 (married) in 2017. This deduction is phased out when Adjusted Gross Income falls in the range of $63,000 to $73,000 (singles) and $101,000 to $121,000 (marrieds).
The income range for making contributions to a Roth type IRA in 2018 is $120,000 to $135,00 (singles and head of household) and $189,000 to $199,000 (married couples).
In 2018, the income limit for the savers tax credit (also called the “retirement savings contributions tax credit”), which is a tax credit for low- to middle-income workers who contribute to a retirement plan or IRA, is $63,000 for married workers (up from $62,000), $47,250 for head of household and $31,500 for single filers (up from $31,000).
Other Tax-Advantaged Plans:
Coverdell Education Savings Account contributions remain at $2,000 per year until the child is age 18, unless the child has special needs.
Health Savings Accounts (“HSA”) limits increased slightly in 2018. The 2018 annual contribution limit that individuals with single medical coverage can contribute to a health saving account is $3,450, an increase from $3,400. The annual HSA contribution limit is $6,900 for those covered under qualifying family medical plans (up from $6,750 in 2017). But if you’re 55 or older in 2018, you can contribute an additional $1,000, or total of $4,450 to an HSA for singles and $7,900 for families per year.
If you’re enrolled in a high-deductible health plan, consider taking advantage of this special savings opportunity. HSA money grows tax-deferred and can be withdrawn tax-free in retirement when used to reimburse yourself for your out-of-pocket qualified medical expenses.
If you have any estate planning or retirement planning questions, please contact Slotegraaf Niehoff PC.