This past November, the IRS announced that it would increase the contribution limits for a wide variety of retirement accounts in 2019 as part of its regular adjustments for inflation.
These changes provide additional incentive for those saving for retirement to participate in tax-advantaged accounts (pretax contributions or tax-free withdrawals), which many employers offer. Financial advisors generally recommend contributing at least up to the value of the match, and some companies will match your contribution up to 5 percent of your total pay.
A key factor to note is that these higher limits are relevant only if you contribute the maximum allowable amount annually.
The new contribution limits affect a diverse range of investment products:
For the first time since 2013, IRA contribution limits are up from $5,500 to $6,000. The catch-up contribution limit for ages 50 and over is unchanged at $1,000.
The maximum for 401(k), 403(b), and most 457 plans as well as the federal government’s Thrift Savings Plan are up from $18,500 to $19,000. The catch-up limit stays at $6,000.
If you’re a small-business owner or self-employed, your SEP IRA and solo 401(k) just got more valuable, with the limit rising from $55,000 to $56,000.
The $56,000 limit also applies if your employer offers after-tax contributions to your 401(k).
When layered together in certain combinations, these plans allow the ambitious saver over 50 to put away as much as $32,000 a year. If your employer has its own match, the savings can go even higher.
Phase-out restrictions have also been adjusted upward alongside contribution limits:
Single taxpayers under a workplace retirement plan now have a range of $64,000-$74,000, up from $63,000-$73,000.
Married couples who file jointly with one partner under a workplace retirement plan have a range of $103,000-$123,000, which was previously $101,000-$121,000. If you file separately, the range is unchanged at $0-$10,000.
If you contribute to an IRA and are not covered by a workplace retirement plan but have a partner who is, the deduction is phased out if your combined income is $193,000-$203,000, up from $189,000-$199,000.
What Does It Mean for Me?
While these changes seem positive on the surface, they can appear complex and might cause the average future retiree to ask, what does this mean for me?
Quite simply, if your employer sponsors a retirement plan, 2019 is the year to contribute the maximum, if your finances allow. The sooner you do this, the more compounding and market growth over time you will enjoy.
It’s the year that HR becomes your best friend. Ask them to estimate what your employer plans to contribute for the year. They may have not yet hit the employer maximum ($18,500) and, with a friendly nudge, might increase their payroll contributions.
It seems like a small thing, but make sure your online accounts have strong passwords, and change them frequently. Keep an eye on transactions and report anything that looks suspicious or out of the ordinary. Hackers like retirement accounts as much as any other.
New year, new you. It’s time to embrace your future and move your retirement plan one step closer to realization. TDECU can help you sift through the IRS’s announcement and make sure you take full advantage of these changes. Contact us for a free consultation.