Tax Musings of a CPA: Retirement Plan Contribution Limits for 2018

In 2018, various retirement plan contribution limits have changed.  Here are the new limits for amounts and income levels for the following:

Traditional IRAs: The maximum contribution for 2018 stays at $5,500.00 if you are under age 50. The catch-up contribution for those who are 50 or older also stays at $1,000.00. If you are in a qualified plan, the maximum income you can make if single and still make a full traditional IRA contribution starts at $63,000.00 Adjusted Gross Income (AGI) and phases out the contribution if you make over $73,000.00.  If you are married filing jointly, the phaseout starts at AGI of $101,000.00 and phases out at $121,000.00. If you file married separately, the contribution starts  phasing out immediately and at $10,000.00 AGI the contribution is phased out entirely (Boo!)

Roth IRAs: The maximum contribution for 2018 stays at $5,500.00 if you are under age 50. The catch-up contribution for those who are 50 or older also stays at $1,000.00. You have an income limitation to contribute to a Roth IRA, whether or not you are in a qualified plan at work. The maximum income you can make if single and still make a full Roth IRA contribution starts at $120,000.00 AGI and phases out the contribution if you make over $135,000.00.  If you are married filing jointly, the phaseout starts at AGI of $189,000.00 and phases out at $119,000.00. If you file married separately, the contribution starts phasing out immediately and at $10,000.00 AGI the contribution is phased out entirely (Boo again!).

Contributing to a Traditional IRA means a deduction on your return for the contribution and deferral of tax on the contribution and earnings until you withdraw the money in retirement.  Contributing to a Roth IRA means no deduction now for your contribution but when you retire and start taking out the money (if you are 59 1/2 or have had the IRA for five years) you never pay tax on the contributions OR the earnings (a pretty good deal over 1t least 10 years.)

 Simple IRAs: This type of IRA has a maximum annual contribution of $12,500.00 if you are under 50, the same as 2017. The catch-up contribution for those who are 50 or older also stays at $3,000.00. Since this is contributed through a company retirement plan, there are no income limits.

SEP (Simple Employee Pension) IRAs: You may contribute up to 25% of your payroll or 20% of your self-employed income with a maximum of $55,000.00 if under 50 and a catch-up contribution for those who are 50 or older at $6,000.00 maximum. Normally these are contributions through businesses (Corporations, LLCs or sole proprietorships.) 

Solo 401ks: This plan allows the employee to make a contribution of the greater of $18,500.00 or 100% of your payroll (called the employee deferral). Your employer can also contribute up to 25% of your payroll, with a maximum combined contribution if under 50 of $55,000.00, and if 50 or older, a catch-up contribution of $6,000.00.  The plan may also have an option to contribute up to the maximum amount of the employee deferral (up to the $18,500.00 if under 50 or up to $24,500.00 if 50 or older) into a Roth component of the 401k, which is treated like a Roth IRA, but with no income limitations on contributions.

A regular 401K has similar limits – you will need to talk to your employer about company matches and Roth components.

So now you have the information; use it to save for retirement so you won’t have to live on social security, buy lottery tickets or work till you die (unless you like working, then have at it.) 

Dollar Mag GlassRetirement 2  For financial,  accounting and tax musings,

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