You remember that part of How The Grinch Stole Christmas (the Jim Carrey version, of course, because it’s the best one) where — spoiler alert — the Grinch realizes the true meaning of Christmas and his heart grows three sizes?
That basically happened in real life a few months ago, except instead of the Grinch it’s the IRS and instead of “Christmas” it’s “retirement savings.” (The heart-growing thing doesn’t really enter into it. Also Christmas was over a month ago. This was a bad analogy.)
Starting in the 2019 tax year (for filing in 2020), you can contribute even more money toward retirement accounts such as an IRA or 401(k). It’s a Christmas miracle!
Changes to IRA and 401(k) Contribution Limits
Below is a brief summary of the new inflation-adjusted numbers for retirement account contributions; see IRS Notice 2018-83 for more technical guidance.
401(k)s. In 2019, the annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan, is $19,000. That is up from $18,500 in 2018.
SEP IRAs and Solo 401(k)s. In 2019, self-employed individuals and small business owners could contribute $56,000 to a Simplified Employee Pension (SEP) IRA or a solo 401(k). That is up from $55,000 in 2018. SEP IRA contributions are limited by a somewhat complicated calculus based on your compensation.
SIMPLE IRAs. In 2019, the annual contribution limit to SIMPLE retirement accounts is $13,000, up from $12,500 in 2018. The SIMPLE catch-up limit remains at $3,000.
Defined Benefit Plans. Though no longer as common as they once were, defined benefit plans are a type of pension plan utilized by high-earners. The annual benefit limitation increases to $225,000 in 2019, up from $220,000 in 2018.
Individual Retirement Accounts (IRAs). Tax law uses a formula to decide when IRA contribution limits increase, and for 2019 it said “let’s help people save a little bit more money.” (I’m paraphrasing, of course.) For the 2019 tax year, you can contribute up to $6,000 to an IRA (either a tax-deferred IRA or a Roth or a little of both), up from $5,500 last year. (Remember: you can make 2018 IRA contributions until April 15, 2019.)
Deductible IRA Phase-Outs. IRAs are a great way to save money, but their tax-deferred advantages are not available to everyone. If you earn enough money, you cannot deduct the contribution from your taxes. (You can still contribute; it’s just nondeductible.)
For the 2019 tax year, the deduction phases out for singles and heads of household with modified adjusted gross incomes (AGI) of $74,000, up $1,000 from 2018.
Roth IRA Phase-Outs. Taxpayers over a certain income cannot open a Roth IRA. In 2019, singles making more than $137,000 cannot contribute to a Roth IRA, up from a $135,000 limit in 2018.
However, there is a way to take advantage of Roth IRAs even if you cannot contribute to one directly. Congress recently changed tax laws to allow certain taxpayers to open a nondeductible IRA and convert it to a Roth IRA. Speak with a financial adviser for more information on this topic.
Retirement is Part of Your Estate Plan
Financial planning is a crucial part of estate planning, because without proper planning, you may not even have an estate to leave behind. For any retirement-specific questions, we recommend you consult with a CPA or financial adviser.
For more information about estate planning, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation appointment. Click the link below for our contact information:
David M. Postic is an associate attorney at Postic & Bates, P.C. His practice includes estate planning, probate, real estate, adoption, business law, and litigation.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]