Here’s good news if you’re trying to maximize your retirement savings: For the first time in six years, the Internal Revenue Service has boosted the annual IRA contribution limit.
The IRS on Thursday announced cost of living adjustments for the upcoming tax year, and effective Jan. 1, 2019, the limit on contributions to an IRA will be set at $6,000, up from the current $5,500. Additionally, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan will rise to $19,000 from $18,500. The catch-up contribution for employees 50 and over will remain unchanged for these plans.
The income phaseout ranges for IRAs are also increasing for the 2019 tax year. Basically, if you are covered by a retirement plan through work, the amount you can contribute phases out. Those limits went up to:
- $64,000 to $74,000 (up $1,000 from last year) for single taxpayers
- $103,000 to $123,000 (up $2,000) for married couples filing jointly, where the IRA contributor is covered by a workplace retirement plan
- $193,000 to $203,000 (up $4,000) for married couples filing jointly, where the IRA contributor is not covered by a workplace plan but their spouse is
There are also phaseout limits for what you can contribute to a Roth IRA. For 2019, the new phaseout ranges will be:
- $122,000 to $137,000 (up $2,000 from last year) for single taxpayers
- $193,000 to $203,000 (up $4,000) for married couples filing jointly
The IRS puts limits on the amount you can contribute to these accounts because the money gets preferential tax treatment.
SHOULD YOU CONTRIBUTE THE MAX?
Saving for retirement is a crucial financial goal, but it’s also important to save for emergencies and other priorities. Because they are tax sheltered, taking money out of retirement accounts can result in you paying a penalty. Therefore, it’s important to strike the right balance between your current and future income needs.
At the very least, you should contribute a percentage of your savings to retirement each year. If you’re offered a 401(k)-matching contribution at work, contribute enough to get the whole match. Then make sure you have your other financial goals covered prior to contributing more to your account.
It’s a good idea to try to up the amount you contribute to your retirement savings annually, perhaps when you get a raise. Before you know it, you’ll be contributing a significant amount to your retirement every year.