You’ll have the opportunity to save more for retirement next year.
The IRS announced on Thursday that it will increase the contribution limits for a range or retirement accounts in tax year 2019.
For the first time since 2013, IRA contribution limits are being increased – from $5,500 to $6,000. The catch-up contribution limit for people 50 and over will still be $1,000.
The IRS also announced an increase in the contribution limit for 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan – increasing the contribution maximum from $18,500 to $19,000. For people 50 and older, the catch-up contribution limit for these accounts remains unchanged at $6,000.
“Higher annual contribution limits for tax-advantaged retirement accounts will help Americans put away more money for their golden years – but only if you’re currently contributing the maximum amount each year,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “Unfortunately, the majority of Americans are saving much less than this each year.”
The sooner you increase your contributions, the more you’ll be able to take advantage of compounding and market growth.
“The increase in contribution limits to both 401(k)s and IRAs for 2019 means every American with earned income, or whose spouse has earned income, can ratchet up their contributions next year,” McBride says. “Regardless of how much you contributed this year, there will be room for improvement in 2019.”
Phaseout ranges also released
The phaseout ranges for IRA deductions in the 2019 tax year were also released.
- The phaseout range for single taxpayers covered by a workplace retirement plan will be $64,000 to $74,000 – increased from $63,000 to $73,000.
- The phaseout range for married couples filing jointly, where the spouse contributing to the IRA is covered by a workplace retirement plan will be $103,000 to $123,000 – up from $101,000 to $121,000.
- For IRA contributors not covered by a workplace retirement plan, who are married to someone who is covered, the deduction is phased out if the couple has an income between $193,000 and $203,000 – an increase from $189,000 and $199,000.
- For married individuals filing a separate return, who are covered by a workplace retirement plan, the phaseout range remains $0 to $10,000.
The phaseout ranges were also updated for Roth IRAs:
- $122,000 to $137,000 for singles and heads of household, which is up from $120,000 to $135,000.
- $193,000 to $203,000 for married couples filing jointly, which is up from $189,000 to $199,000.
The phaseout range for and individual who is married and filing a separate return who contributes to a Roth IRA isn’t subject to annual cost-of-living adjustment. This phaseout range remains at $0 to $10,000.
Take advantage of tax-advantaged accounts
If you have access to an employer-sponsored retirement plan, try to contribute as much as you can in the 2019 tax year – especially if you receive a matching contribution from your employer. Also consider opening up an IRA and calculating your progress.
“The first stop for retirement savings is to utilize tax-advantaged retirement savings accounts such as a workplace 401(k), 403(b), or 457 plan and an IRA,” McBride says. “With tax-advantaged accounts, the government is giving you a helping hand toward saving for your future, either by making pretax contributions now or tax-free withdrawals in retirement. Further, many employer sponsored plans offer a matching contribution or safe harbor contribution from the employer that amounts to free money for your retirement account.”
While the changes won’t go into effect until next year, it’s smart to start planning your future 401(k) contributions today.
“Spread it out over the year,” says Barry S. Kleiman, CPA, principal at Untracht Early LLC and a member of the NYSSCPA’s Taxation of Individuals Committee.
Because you can make 2019 contributions to an IRA up to April 15, 2020, there’s not as much planning needed to maximize your IRA as there is with 401(k) contributions.
“Some people like to do it early, but more importantly is the 401(k) and making sure your deferral is proper,” Kleiman says.