IRS Releases 2018 Pension Plan Contribution Limits

A new year brings new changes. The Internal Revenue Service recently announced updated pension plan contribution limitations for the 2018 tax year.

The Highlights
The new limit for elective-deferral contributions to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased from $18,000 to $18,500. For those ages 50 and older by the end of 2018, the catch-up contribution remains at $6,000, with the ability to defer a total of $24,500 of their earnings to a tax-advantaged savings plan.

If an employee has additional contribution resources such as an employer retirement plan, nonelective deferrals or allocations of forfeitures, the 2018 contribution limitation will increase by $1,000 to $55,000.

Traditional IRAs and Roth IRAs
The IRS also slightly increased the income ranges for determining eligibility to deduct contributions to traditional IRAs and Roth IRAs. If a taxpayer participates in an employer retirement plan, there are phaseouts and elimination periods based on filing status; however, if a taxpayer (or their spouse) is not covered under an employer retirement plan, the phaseouts do not apply.

According to the IRS, the following are the phase-out ranges for traditional IRAs:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.
• 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, up from $99,000 to $119,000.
• 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 $189,000 and $199,000, up from $186,000 and $196,000.
• 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 following are the phase-out ranges for Roth IRAs:

• For singles and heads of household, the income phase-out range is $120,000 to $135,000, up from $118,000 to $133,000.
• For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000.
• The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Self-Employed Individuals
Since self-employed individuals are considered both the employer and employee, they are eligible to contribute as much as 25% of their net self-employment income, up to the total limit applicable to their situation.

Saver’s Credit
The Retirement Savings Contributions Credit caps its income limit at $63,000 for married couples filing jointly, an increase of $1,000; $47,250 for heads of household, an increase of $750; and $31,500 for single taxpayers and for married individuals filing separately, an increase of $500.

Conclusion
While these 2018 increases may seem minor, they could make a significant impact in your retirement savings over the long run.

For more details regarding the 2018 pension plan contribution limitations, read the full IRS News Release. If you have any additional questions regarding these new increased limits, please contact your advisor at (805) 963-7811.