Are you ready to save more for retirement? The Treasury Department adjusted figures for inflation for retirement account savings for 2019, and there are a lot of changes that will help savers stuff these accounts.
After six years stuck at $5,500, the amount you can contribute to an Individual Retirement Account is being bumped up to $6,000 for 2019. The amount you can contribute to your 401(k) or similar workplace retirement plan goes up from $18,500 in 2018 to $19,000 in 2019. Catch-up contribution limits if you’re 50 or older in 2019 remain unchanged at $6,000 for workplace plans and $1,000 for IRAs.
That means that many high earners and super-savers age 50-plus can sock away $32,000 in these tax-advantaged accounts. If your employer allows after-tax contributions or you’re self-employed, you can save even more. The overall defined contribution plan limit moves up to $56,000, from $55,000.
Do these limits seem unreachable? During 2017, 13% of employees with retirement plans at work saved the then-statutory maximum of $18,000/$24,000, according to Vanguard’s How America Saves. In plans offering catch-up contributions,14% of those age 50 or older took advantage of the extra savings opportunity.
We outline the numbers below; see IRS Notice 2018-83 for technical guidance.
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 $19,000 for 2019—a $500 boost over 2018. Note, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.
The 401(k) Catch-Up
The catch-up contribution limit for employees age 50 or older in these plans stays the same at $6,000 for 2019. Even if you don’t turn 50 until December 31, 2019, you can make the additional $6,000 catch-up contribution for the year.
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 $55,000 in 2018 to $56,000 in 2019. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also goes up from $275,000 in 2018 to $280,000 in 2019.
Aftertax 401(k) Contributions
If your employer allows after-tax contributions to your 401(k), you also get the advantage of the $56,000 limit for 2019. It’s an overall cap, including your $19,000 (pre-tax or Roth) salary deferrals plus any employer contributions (but not catch-up contributions). For how to rollover aftertax 401(k) money into a Roth IRA.
The limit on SIMPLE retirement accounts goes up from $12,500 in 2018 to $13,000 in 2019. The SIMPLE catch-up limit is still $3,000.
Defined Benefit Plans
The limitation on the annual benefit of a defined benefit plan goes up from $220,000 in 2018 to $225,000 in 2019. These are powerful pension plans (an individual version of the kind that used to be more common in the corporate world before 401(k)s took over) for high-earning self-employed folks.
Individual Retirement Accounts
The limit on annual contributions to an Individual Retirement Account (pretax or Roth or a combination) is moving up to $6,000 for 2019, up from $5,500. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000. (Remember that 2018 IRA contributions can be made until April 15, 2019.)
Deductible IRA Phase-Outs
You can earn a little more in 2019 and get to deduct your contributions to a traditional pretax IRA. Note, even if you earn too much to get a deduction for contributing to an IRA, you can still contribute; it’s just nondeductible.
In 2019, 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 $64,000 and $74,000, up from $63,000 and $73,000 in 2018. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $103,000 to $123,000 for 2019, up from $101,000 to $121,000.
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 $193,000 and $203,000 in 2018, up from $189,000 and $199,000 in 2018.
Roth IRA Phase-Outs
The inflation adjustment helps Roth IRA savers too. In 2019, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $193,000 to $203,000 for married couples filing jointly, up from $189,000 to $199,000 in 2018. For singles and heads of household, the income phase-out range is $122,000 to $137,000, up from $120,000 to $135,000 in 2018.
If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions.
The income limit for the saver’s credit for low- and moderate-income workers is $64,000 for married couples filing jointly for 2019, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married filing separately, up from $31,500.
The dollar limit on the amount of your IRA or 401(k) you can invest in a qualified longevity annuity contract remains unchanged at $130,000.