Commentary by Joel Harris
In the third week of October, the Treasury Department announced the new contribution limits for retirement account savings for 2015. Bottom line – Uncle Sam wants you to save more for your retirement. Here is a highlight of the new contribution limits for 2015.
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 increased to $18,000 for 2015. This is a $500 increase from the $17,500 allowable in 2013 and 2014.
The 401(k) Catch-Up – The catch-up contribution limit for employees age 50 or older in these plans goes up to $6,000 for 2015, up from $5,500.
IRAs – IRA contribution limits is one of the only retirement accounts not getting a bump up in 2015. The $5,500 limit on annual contributions to an Individual Retirement Account remains the same for 2015. For those over the age of 50, the catch-up contribution remains at $1,000 for 2015.
The SIMPLE IRA – The contribution limit on SIMPLE retirement accounts for 2015 is $12,500, up from $12,000 in 2014. The SIMPLE catch-up limit for those over 50 years old is $3,000, up from $2,500 in 2014.
Defined Benefit Plans – The limitation on the annual benefit of a defined benefit plan remains unchanged at $210,000 in 2015. Defined benefit plans can be specifically valuable to self-employed individuals because of the wide variety of tax benefits.
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 $52,000 in 2014 to $53,000 in 2015. That’s based on the amount they can contribute as an employer, as a percentage of their salary. Additionally, the new compensation limit used in the savings calculation is going up from $265,000 for next year.
Deductible IRA phase-outs –You can earn slightly more in 2015 and get to deduct your contributions to a traditional pre-tax IRA. In 2015, 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 $61,000 and $71,000, up from $60,000 and $70,000 in 2014.
For married couples filing jointly, if the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, slightly up from $96,000 to $118,000. 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 $183,000 and $193,000, which is up from $181,000 and $191,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range remains $0 to $10,000.
One important caveat to remember with a traditional IRA – even if you don’t qualify for a tax deduction because of the above mentioned criteria, you can still make a non-deductible contribution no matter how much money you make next year. This is often overlooked because many think the above-mentioned rules apply to their ability to contribute on a yearly basis, when in fact they don’t. Furthermore, working spouses can contribute on behalf of a non-working spouse, so focus on details like these to defer as much of your retirement savings from taxes as you can.
Roth IRA phase-Outs – In 2015, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014. For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,
If you make too much money to contribute to a Roth IRA, you might want to investigate to see if your company’s 401(k) provides on Roth contribution option. The high-income thresholds listed above do not apply to Roth 401(k) contributions in 2015.
The Saver’s Credit – The 2015 AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000; and $30,500 for married individuals filing separately and for singles, up from $30,000.