IRS Raises Retirement Plan Contribution Limits for IRAs, 401(k)s and More

The IRS has announced inflation-adjusted figures for retirement account savings for 2019, and there are a lot of changes that will help savers grow these accounts. Most notable, is that for the for the first time since 2013, the contribution limit for individual retirement accounts (IRA’s) has increased, from the current $5,500 to $6,000. The amount you can contribute to your 401(k) or similar workplace retirement plan goes up from $18,500 in 2018 to $19,000 in 2019. Catch-up contribution limits if you’re 50 or older in 2019 remain unchanged at $6,000 for workplace plans and $1,000 for IRAs.

With the new limits, many high earners and super-savers age 50-plus can sock away $32,000 in these tax-advantaged accounts. If your employer allows after tax contributions or you’re self-employed, you can save even more.

With the end of the year approaching, it’s a good time to review your current contributions and plan for next years. An in-depth look at the 2019 figures are outlined below:

401(k)s: The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is $19,000 for 2019—a $500 boost over 2018. Note, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.

The 401(k) Catch-Up: The catch-up contribution limit for employees age 50 or older in these plans stays the same at $6,000 for 2019. Even if you don’t turn 50 until December 31, 2019, you can make the additional $6,000 catch-up contribution for the year. Electing catch-up contributions is not always intuitive. Look at your plan’s website carefully as you may have to make two choices – one for the pre-tax allowable amount (typically a percentage of your salary) and a second election for the catch-up portion which is often a dollar amount.

SEP IRAs and Solo 401(k)s: For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) goes up from $55,000 in 2018 to $56,000 in 2019.  The solo 401(k) also allows for a catch-up contribution while the SEP IRA does not.  However, the total allowable amounts do vary based on the type of business you have so we recommend you discuss with your accountant or call us here at Kendall Capital to decide which plan is right for you.  The deadline to open a solo 401(k) is December 31st!

The SIMPLE: The limit on SIMPLE retirement accounts goes up from $12,500 in 2018 to $13,000 in 2019. The SIMPLE catch-up limit is still $3,000.

Individual Retirement Accounts: The limit on annual contributions to an Individual Retirement Account (pretax or Roth or a combination) is moving up to $6,000 for 2019, up from $5,500. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000. (Remember that 2018 IRA contributions can be made until April 15, 2019.)

Deductible IRA Phase-Outs: You can earn a little more in 2019 and get to deduct your contributions to a traditional pretax IRA.  This is a tricky part of the IRA rules but it’s good to know that if you or your spouse do not have an employer-sponsored retirement plan, it may be possible to make tax-deductible IRA contributions.  Just keep in mind that that IRA contribution amount is limited to $6000 per tax payer and you should weigh the pros and cons of making a deductible contribution vs a Roth IRA contribution – or you can do some in each, so long as the total is less than $6000.

In 2019, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $64,000 and $74,000, up from $63,000 and $73,000 in 2018. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $103,000 to $123,000 for 2019, up from $101,000 to $121,000.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000 in 2018, up from $189,000 and $199,000 in 2018.

Roth IRA Phase-Outs: The inflation adjustment helps Roth IRA savers too. In 2019, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $193,000 to $203,000 for married couples filing jointly, up from $189,000 to $199,000 in 2018. For singles and heads of household, the income phase-out range is $122,000 to $137,000, up from $120,000 to $135,000 in 2018.

If you earn too much to contribute to a Roth IRA, it’s possible to make non-deductible contributions to a traditional IRA and then immediately convert that money to Roth. The IRS has spoken and deemed “Back-Door Roth IRA” contributions allowable.  However, please review your options carefully if you have existing IRAs as this strategy could backfire due to an important aggregation rule.  Again, this is a strategy that should be discussed with your accountant or with us here at Kendall Capital.