Each October, the Internal Revenue Service announces changes to annual contribution limits for IRAs and workplace retirement plans. Are any of these limits rising for 2017?
Will IRA contribution limits go up? Unfortunately, no. Annual contributions for Roth and traditional IRAs remain capped at $5,500 for 2017, with an additional $1,000 catch-up contribution permitted for those 50 and older. If eligible, you can add to both of these types of IRAs, but combined, must stay below the annual contribution limit. This is the fifth consecutive year those limits have gone unchanged. The SIMPLE IRA contribution limit is the same in 2017 as well: $12,500 with a $3,000 catch-up permitted.
There is a slight increase though when it pertains to the employer contribution to a SEP-IRA which rises $1,000 in 2017 to $54,000; this adjustment also applies for individual 401(k)s.
Am I eligible to contribute? When determining if you’re eligible to make contributions to a deductible Traditional IRA or a Roth IRA, you must see where your modified adjusted gross income (MAGI) falls for the given year. For 2017 we get a very slight bump up in the amount of income we can earn and still contribute to these types of accounts.
For Roth IRA contributions the phase out ranges are:
*Single/head of household $118,000-133,000 ($1,000 higher than 2016)
*Married couples $186,000-196,000 ($2,000 higher than 2016)
For those who wish to make some deductible contributions to a Traditional IRA, the rules are complex and depend on whether or not your spouse also contributes to a retirement plan.
Will you be able to put a little more into your 401(k), 403(b), or 457 plan next year? No. As an employee your contributions stay the same – $18,000 for 2017. (That limit also applies to the Thrift Savings Plan for federal workers.) The additional catch-up contribution limit for plan participants 50 and older remains at $6,000. If 2017 brings you an opportunity to make 1099 or self-employed income or you’re considering starting a business, please consult with us to determine your retirement plan options no later than October 1st.
When it comes to determining which type of IRA to use and how much to add, you should ask yourself, “Will I be in a higher or lower tax bracket when I retire?” That question used to be clear for most people, but today, we find the cost to retire in our area means maintaining a level of income which may put you in the 25% – 33% tax brackets – especially when taking Social Security and Required Minimum Distributions. Of course, one never knows where tax rates will be in the future either.