There are some key retirement plan contribution changes going into effect in 2019. While major tax reform went into effect last year, there are some changes that hit retirement contributions in 2019. Looking at the changes and making adjustments now can help you make the most of the coming year – most workers can save more across all income levels. Here’s what’s changing for 2019 401k contribution limits and other 2019 retirement contribution changes:
How much can you put in a 401k in 2019?
You can put up to $19,000 in a 401k in 2019. That’s up from $500 from last year’s limits. While it’s only a slight increase, for workers who want to make the most of their retirement savings or get caught up, every little bit makes a difference. In addition, lower-income earners can claim a savings tax credit in addition to the tax deduction that everyone gets for contributing to a 401k.
The contribution changes apply not only to 401ks, but also to 403b plans, many 457 plans and the Thrift Savings Plan for government workers. You can adjust your monthly contributions to add another $500, or you can make the additional contribution all at once. If you make the contributions monthly, it’s an extra $42 per month.
401k catch-up contributions for older workers
While the contribution limits for general 401k contributions have gone up a little bit, the 401k catch-up limit has not changed. Employees 50 and older can contribute more to their 401k than the annual limit. The extra contribution is called a catch-up contribution, but it’s really just a higher limit for older workers.
The 401k catch-up contribution in 2019 is $6,000. That means if you’re 50 or older, you can contribute an extra $6,000 to your 401k account. If you’re 50 or older, you can contribute a total of $25,000 to your 401k in 2019.
What is the IRA contribution limit in 2019?
In addition to 401k contribution limit changes in 2019, there are also changes to IRA contribution limits. An IRA allows you to save for retirement on a tax-free or tax-deferred basis. Like the 401k contribution limit, the IRA limit is also inching up by $500 in 2019. It’s the first time the IRA contribution limit has gone up since 2013. There’s also an IRA catch-up contribution limit, but it’s unchanged for 2019 at $1,000.
Income limits for retirement savings in 2019
In 2019, there are limits to IRA contributions based on your income. There are a few things to keep in mind when you’re sorting out whether the income limits apply to you. First, if you don’t get a 401k through your employer, you can contribute to the IRA no matter how much you earn. Even if you earn over the income limits, the limits don’t apply to you because you can’t do an employer-sponsored plan. Your filing status matters, too, so if you’re filing joint, you may have a higher income limit than if you file single.
Even if you can’t deduct your IRA contributions from your income, there may be benefits to you of contributing to an IRA. Your contributions may still grow with tax-deferred status. You can still come out ahead even if you can’t take the tax deduction on your 2019 taxes.
There are a lot of moving parts when it comes to determining whether you qualify to contribute to an IRA and whether you can take a 2019 tax deduction for your contribution. Your income and whether you have an employer-sponsored 401k are both factors that might change your IRA tax deductions. If you have an employer-sponsored 401k, you can still take tax deductions in 2019 for an IRA if you earn $74,000 or less as an individual. The joint income cut-off for IRA contributions in 2019 is $123,000. These limits represent a $1,000 and $2,000 increase from 2018. There are also phase-outs which start at $64,000 for a single and $103,000 for a couple. There are different phase-out limits that apply if one spouse can do a 401k through work and the other spouse can’t.
2019 Roth IRA contribution income limits
In 2019, the income limits are going up for Roth IRA contributions. A Roth IRA is a special kind of IRA where you pay the taxes up front when you make the deposits. Later on, you get to withdraw your contributions tax-free. The income limit for Roth contributions goes up $2,000 for singles in 2019 and $4,000 for couples.
The cut-off in 2019 is $203,000 for a married couple and $137,000 for a single. If you make over these amounts, you can’t contribute to a Roth at all. If you make $122,000 as a single or $193,000 as a couple, you can still contribute some to a Roth account, but there are phase-outs that apply to what you can contribute. Because withdraws in retirement aren’t taxed from a Roth account, a Roth can be a fantastic savings vehicle for people who qualify.
Saver’s credits in 2019
In addition to other 2019 retirement contribution changes, there are also increases to saving tax credits for lower-income workers. Workers who earn $32,000 or less as individuals and $64,000 as married couples get an additional 10-50 percent deduction from their 2019 taxes for 401k and IRA contributions. The limit is up to a $2,000 credit for singles and $4,000 for couples.
Retirement savers with the lowest incomes are eligible for the biggest tax credit which can be worth as much as $1,000 for individuals and $2,000 for couples. The saver’s credit can be claimed in addition to the tax deferral for saving in a traditional retirement account. The workers with the lowest incomes get to claim the highest percent deductions.
Retirement contributions and estate planning in 2019
Addressing retirement contributions should be part of your estate planning in 2019. Estate planning is so much more than just drafting a will. As you plan for your future and for your loved ones, maximizing tax benefits and determining optimum retirement contributions is an important consideration. One of our experienced estate planning attorneys can help people of all income levels maximize their retirement benefits and overall estate planning strategy in 2019.