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Retirement plan inflation adjustments for 2019

Updated Nov. 15, 2018


Welcome to Part 3 of the ol' blog's 2019 series on tax inflation adjustments. 
We started on Nov. 15 with a look at next year's income tax brackets and rates.
Today we look at allowable annual retirement plan contributions amounts
and, for some taxpayers, tax deduction options and limitations.
Note: The 2019 figures apply to 2019 returns to be filed in 2020.
For comparison purposes, you'll also find 2018 amounts to be used
in filing 2018 returns due April 15, 2019.


Retired couple walking along beach
If this is how you want to spend all your post-work days, you need to save as much as you can now for retirement.

Just when you thought I was through with retirement posts after the parade of them last week, the Internal Revenue Service pulls us into Retirement Week Part 2.

The IRS today (Nov. 1) issued the inflation adjusted amounts that can be contributed to the various tax-advantaged retirement plans in tax year 2019.

Inflation has been low for most of 2018, thanks to (or blamed by Donald J. Trump) the Federal Reserve Board's incremental bumps up of interest rates.

Still, economic indicators have grown enough to justify some cost-of-living adjustments (COLA) increases in popular IRA and workplace 401(k) retirement saving plans.

And, as is often the case, some things will remain the same for the coming tax year.

Here are the highlights of what will and won't change when it comes to retirement accounts in 2019.

IRA contributions increase: Individual retirement arrangements, or IRAs as they are popularly known, are a great way to save for post-work years.

You can contribute to a traditional IRA with pre-tax dollars and possibly claim a deduction for at least some of the amount you're saving.

Or you can put already-taxed money into a Roth IRA and not have to worry about taxes on that retirement account every again.

When it comes to IRAs in 2019:

  • The contribution limit to either a traditional or a Roth IRA increases $500 from the 2018 limit, going from $5,500 to $6,000 next year. This is the first hike in the IRA contribution limit since 2013.
  • The additional catch-up contribution limit for individuals age 50 and older, however, remains at $1,000 for both types of IRAs. That's because this amount is not subject to an annual COLA.

In addition, the IRS has increased the income ranges for 2019 that determine whether you can make deductible contributions to a traditional IRA, contribute at all to a Roth IRA and/or claim the Saver's Credit.

More earnings for IRA maneuverability: Traditional IRAs are still popular because if you or your spouse don't have retirement plans at work, you can deduct your full IRA contribution.

If, however, either spouse is covered by a workplace retirement plan, the deductible amount of a traditional IRA contribution is phased out or totally eliminated depending on your filing status and income.

The table below shows how much more you can make in 2019 before you hit the level where your traditional IRA contributions are reduced or are no longer deductible. The 2018 amounts are shown, too, to give you an idea of the change and because you can still contribute to your IRA for the 2018 tax year.

 

2018 phase-out range 
based on *MAGI

2019 phase-out range 
based on *MAGI

Singles and Heads of Households
who are covered by a workplace retirement plan

$63,000 to $73,000

$64,000 to $74,000 

Married couples filing jointly and the spouse making the contribution is covered by a workplace retirement plan

$101,000 to $121,000

$103,000 to $123,000

Married couples filing jointly and the spouse making the contribution has no workplace plan but his/her spouse is offered a retirement plan at his/her job

$189,000 and $199,000

$193,000 and $203,000

Married individual filing a separate return and is covered by a workplace retirement plan**

$0 to $10,000

$0 to $10,000

*MAGI is modified adjusted gross income (Shameless plug: You can check out the ol' blog's glossary for more on MAGI, 
as well as the previously mentioned individual retirement arrangement/account and lots of other tax terms.)

**There is no annual inflation adjustment in married filing separately situations

More room for Roth contributions: Roth IRA contributions are not tax deductible when you make them, but withdrawals when you retire are not taxed.

These accounts also have some income limits.

For 2019, the amount you can put into a Roth is reduced if your earnings are within the income range for your filing status in the following table. Again, the 2018 amounts are included for comparison and tax planning for the rest of this year.

 

2018 phase-out range
based on MAGI

2019 phase-out range
based on MAGI 

Singles and Heads of Households

$120,000 to $135,000

$122,000 to $137,000

Married couples filing jointly

$189,000 to $199,000

$193,000 to $203,000


Again, note the top dollar amounts. Once your income exceeds the maximum amount for your filing status, you cannot contribute to a Roth IRA.

You can, however, contribute to a traditional IRA and then convert that account to a Roth IRA.

Just like a traditional IRA, the phase-out range for a married individual making Roth contributions while filing a separate tax return is not subject to an annual COLA and stays at $0 to $10,000.

Workplace plan changes, too: In addition to IRAs, some folks are able to stash retirement money in workplace defined contribution accounts known in the private sector as 401(k)s.

The tax code monikers are slightly different for folks employed by other groups — 403(b) for some nonprofits and teachers, 457 plans for certain government employees and Uncle Sam's Thrift Savings Plan (TSP) for civil service employees and retirees, as well as for members of the uniformed services — but the same COLA changes tend to apply.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the TSP increases in 2019 to $19,000 from the $18,500 allowed in 2018.

Catch-up contribution limits for employees age 50 and older who participate in these plans, however, remains unchanged at $6,000.

And if you're lucky enough to work for a place that has an old-school defined contribution plan — this is where your boss takes total care of your retirement fund — there's good news there for next year, too. The limitation on the annual benefit of this retirement plan goes up next year to $225,000 from the 2018 limit of $220,000.

Self-employed plan bumps: When you're the boss at your own company, in addition to concentrating on turning a profit, you need to think about the day when you decided to relinquish control.

SEP-IRAs (or, from the glossary, Simplified Employee Pension) and Solo 401(k) are popular retirement vehicles for the self-employed and small business owners.

The maximum amount that can be put into either of these plans as an employer is determined by a percentage of salary. Once those calculations are completed (thank goodness for tax pros and/or tax software!), the maximum is $55,000 this year. It's bumped up in 2019 to $56,000.

The amount of earnings amount used to figure your SEP or SoloK contribution also goes up next year. The compensation of $275,000 limit in 2018 goes up to $280,000 in 2019.

If you have a SIMPLE, or savings incentive match plan for employees (final, I swear, glossary plug), the limit on SIMPLE plans for 2019 goes up to $13,000 from the $12,500 cap in 2018. The SIMPLE catch-up limit next year, however, remains at $3,000.

Added credit for saving: The Saver's Credit, or the Retirement Savings Contributions Credit as it's officially titled, is a tax break the rewards low- and moderate-income individual for adding to their nest eggs.

This credit, which is a dollar-for-dollar reduction in any tax you owe, is $1,000.

You can claim the Saver's Credit based on the money you put into IRAs and workplace plans, either where you are an employee or are self-employed. But it is not available if you make more than the earnings limit for your filing status.

In 2019, the Saver's Credit maximum earnings caps go to:

  • $64,000 for married couples filing jointly, up from 2018's limit of $63,000;
  • $48,000 for heads of household, up from $47,250 last year; and
  • $32,000 for singles and married filing separately filers, up from $31,500 in 2018.

More retirement inflation info: These retirement plan inflation adjustments are a lot of numbers, but if you want more, you can peruse the official details on the 2019 COLAs in for next year, check out the IRS Notice 2018-83.

The IRS should announce other 2019 inflation adjustments for things like federal income tax brackets, possible changes to the standard deduction and the estate tax exemption amount shortly.

When that happens, I'll post the highlights here on the ol' blog in the usual manner: a 10-part series on tax inflation amounts.

UPDATE, Nov. 15, 2018: The IRS today released its full 2019 tax year inflation adjustments. The 2019 inflation series starts with a look at next year's tax rates and income tax brackets. Links at the end of the post serve as a directory for the full series.

This post and a couple of other items on already announced inflation numbers will be part of that series (I'll put the cross-reference links into this and those posts, too), making it a handy, parceled-out collection where you can find just the numbers you want.

In the meantime, check out the just-announced retirement limits for 2019 and their 2018 counterparts discussed here. They can help you, if you're able, max out for both years whichever savings vehicles you use to prepare for your eventual retirement.

When you finally leave your office for the final time, you'll be glad you did.

More inflation figures: As noted in the intro to this post, you can read the first part of the 2019 tax inflation series with details on next year's tax rates and income brackets.

You'll also find at the end of that post an index of what's coming up, along with links to inflation pieces already published.

You also might find these items of interest:

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