The following is presented for informational purposes only.
The new retirement contribution limits have been released for 2019 by the IRS and the news is good. These are cost-of-living adjustments that affect workplace retirement plans and allow you to save more.
Key retirement contribution changes
If you contribute to a retirement plan like a 401(k) or IRA here’s what you need to know:
- For workers who contribute to an employer sponsored 401(k), 403 (b), most 457 plans, and the government’s Thrift Savings Plan, your savings limits increase from $18,500 to $19,000 per year. This means you can save up to $1,583 per month with these plans.
- For those employees over the age of 50 who contribute to any of the above plans, your catch-up contribution limit stays the same, $6,000 per year or $500 per month. However, that’s in addition to the above limits, not instead of.
- The annual IRA contribution increases for both Traditional IRAs and Roth IRAs from $5,500 to $6,000 and the catch-up contribution for those over the age of 50 remains at $1,000. So that’s $500 a month if you’re under 50 and $583 if you’re over 50.
That means if you’re over 50 and have a 401(k) in addition to an IRA or a Roth IRA, you are allowed to save up to $32,000 per year.
Read more: How to Rollover a Retirement Account
The income limits to be able to deduct contributions has also changed:
- If you’re single and have a workplace retirement plan, your income limits are raised from $63,000-$73,000 to $64,000-$74,000.
- Married couples filing jointly with a spouse making an IRA contribution covered by their workplace retirement plan, the income limits are raised from $101,000-$121,000 to $103,000-$123,000.
Changes for self-employed taxpayers
There are also changes that will help the self-employed. If you are a small business owner or a self-employed taxpayer, the amount you can save in a Solo 401(k) or SEP IRA has increased. It’s gone up from $55,000 to $56,000, or up to $4,666 per month. Actual allowable contributions will be based on the amount you can contribute as an employee or employer with an income limit of $280,000.
If you are a business owner over the age of 50, you are also allowed catch-up contributions to a Solo 401(k). Unfortunately, there are no catch-up contributions allowed on a SEP IRA.
Changes to healthcare savings accounts
Healthcare savings account limits for retirement are also up. These accounts allow for both tax-deductible and tax-free withdrawals when used to pay qualified medical expenses. For singles, the limit is now $3,500, up $50 from 2018. And for families, the limit is $7,000, up $100 from 2018. For those 55 and older, you can set aside an additional $1,000 per year.
All in all, these increases can give your retirement savings a significant boost. Combined, these limits can allow you to save anywhere from $65,000 to $76,000 per year depending on your age, your income, and your retirement plans. That means you are allowed to save between $5,416 and $6,333 per month.
If you’re in a financial position to be able to contribute the maximum allowances to your retirement plans, this can make a huge difference to your long-term financial security. Even if you aren’t able to contribute the maximum, these new limits allow you the freedom to contribute what you can to build your financial security.