Retirement Plans

The Internal Revenue Service announced recently the cost of living adjustments affecting dollar limitations for pensions plans and other retirement related items for the year 2018, which we reviewed last time on this column. The following rules from the IRS announcement will apply during 2018.

The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, and the federal government’s Thrift Savings Plan is increased to $18,500 per year.

The income ranges for determining eligibility to make contributions to a traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit, all increased for 2018.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased-out, until it is eliminated, depending on filing status and income. If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.

For single taxpayers covered by a workplace retirement plan, the phase out range is $63,000 to $73,000. For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase out range is $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 has a limit if the couple income is between $189,000 and 199,000.

For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost of living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit for low and moderate-income workers is $63,000 for married couples filing jointly; $47,250 for head of household; and $31,500 for singles and married individuals filing separately.

The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost of living adjustment and remains $1,000. The catch-up contribution limit for employees aged 50 and over who participate in these savings plans remains unchanged at $6,000 per year.

President Trump —who considered removing tax incentives on these retirement saving programs— now says that there will be no changes on the tax incentives to these popular savings plans on his tax proposals now being considered in the US Congress.

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