Good news for those saving for retirement: Employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan will be able to save $19,000 per year in 2019, up from $18,500 in 2018.
What's more, the limit on annual contributions to an IRA increased to $6,000 for 2019, from $5,500. And the additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000, the IRS has announced.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan remains unchanged at $6,000.
The IRS also announced the income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver's credit all increased for 2019.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions, according to the IRS.
If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.
Here are the phase-out ranges for 2019:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
- 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 $193,000 and $203,000, up from $189,000 and $199,000.
- 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.
- According to the IRS, the income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. 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.
The IRS also noted that the income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.
What say advisers about the cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019?
"The coming increases to contribution limits in retirement plans escalates the impact of making the correct decision to contribute to traditional, Roth, or after-tax type accounts, be it employer plans -- 401(k), 403(b), etc. -- or IRAs," said Brian Vnak, a certified financial planner with Wealth Enhancement Group. "The reduced tax rates and bigger tax brackets in place have changed the math on which path is correct for many individuals. Retirement savers and spenders need to get a handle on their current and future expected tax rates so they can take advantage of the right opportunity."
For young workers who are not at their highest earning potential, Vnak said Roth contributions -- which do not get a tax deduction -- are often more beneficial. "As a worker approaches retirement and typically at their highest earning potential, tax-deductible contributions to traditional retirement accounts make sense since tax-rates are often expected to decrease once retired," he said.
The tricky spot, Vnak noted, is the space between where a person needs to change their decision from Roth to traditional. "For many individuals, once their federal marginal rate is over 24%, a deductible contribution likely becomes preferred," he said. "But that is unique to each individual's net worth and what they expect their income to look like in retirement."
For his part, Bill Garrett of Garrett Wealth Management also suggested that those saving for retirement consider using tax-free or taxable accounts, "IRAs pose a serious problem for retirees in the next 10 to 20 years if income taxes go up substantially," he said. "Required minimum distributions or RMDs could push many people into higher tax brackets leading to less after-tax Social Security and accelerated erosion of retirement savings."