Saving for Retirement Just Got a Little Easier
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.