Out with the old and in with the new—that’s what new years are all about! In regards to retirement planning, one thing the new year brings is updated contribution limits from the IRS. And, the new limits are out now, giving you a chance to start your retirement planning strategy when we ring in 2017.
Sometimes contribution limits change, but sometimes they don’t and the factors are based on a few boring statistics like inflation and such that we aren’t going to bother you with. Why? Because all you really need to know is what the contribution limits are for 2017.
TRADITIONAL AND ROTH IRAS
The annual contribution limits for both traditional and Roth IRAs hold steady this year (as they have for the past five years and counting) at $5,500 with a catch-up allowance of $1,000 if you’re 50 or older.
But, smile anyway because the IRS has given a little caveat here regarding both plans and phase-out limits.
Traditional IRAs: The taxpayer deduction income phase-out has risen in 2017, enabling singles and heads of household who are covered by a workplace retirement plan to have a modified adjusted gross incomes (AGI) between $62,000-$72,000. (For 2016 that phase out was $61,000-$71,000 AGI.) If you’re married and filing jointly—for the spouse who makes the IRA contribution and is covered by a workplace plan the phase-out is $99,000-$119,000 for 2017 (up from $98,000-$118,000 for 2016).
Phase outs for those who do not have a workplace retirement plan, but have a spouse who is covered, the deduction phases out at $186,000-$196,000 in 2017 (compared to $184,000-$194,000 in 2016). If you’re married and covered by a workplace plan, but filing separate income taxes, your phase-out remains the same in 2017 as it was in 2016: $0-$10,000.
Be advised that if your income exceeds the requirements for a tax-deductible contribution, that’s ok! You can (and should) still make a contribution to your traditional IRA, but it just won’t be a deductible event.
Roth IRAs: Contribution phase-outs have risen a bit here. In 2017, in order to contribute to this plan, the AGI phase-out for married/filing jointly is $186,000-$196,000. (It is $184,000-$194,000 for 2016.) If you’re single or head of household, that income limit has risen to $118,000-$133,000 for 2017 (compared to $117,000-$132,000 in 2016).
These limits increased a bit from the lesser of 25% of compensation or $53,000 in 2016 to the lesser of 25% of compensation or $54,000 in 2017. Every little bit counts so take advantage of this if you can!
The limit here is the same as in 2016: $12,500 with an additional allowance for $3,000 if you’re 50 or older. The employer match remains between 1-3% of the employee’s deferral; the employer non-elective contribution remains at 2% of the employee’s deferral. Nothing new here, but this is still a fantastic plan if you’re a small business and/or self-employed!
INDIVIDUAL 401(K)/PROFIT SHARING PLANS
Employee deferral limits remain the same for 2017 at $18,000 with at $6,000 catch-up contribution if you’re 50 or older. However, the total combined employee deferral plus profit sharing match is now $54,000 in 2017 if you’re under 50; $60,000 if you’re 50 or older. (For 2016 these limits were $53,000/$59,000.) Here again, the IRS has thrown you a bone! Make sure you take advantage of it and max out these annual limits if you can.
HEALTH SAVINGS ACCOUNTS
Here you’re only given an additional $50 for a single plan, bringing the contribution limit up to $3,400 for 2017. The family plan remains the same as it was in 2016: $6,750. Catch-up contributions for single and family plans are still $1,000 if you’re 55 years or older.
EDUCATION SAVINGS ACCOUNTS
The annual limit here is $2,000 per year per child for 2017(the same as it is for 2016).
So, there you have it, folks. Even if the contribution limits haven’t changed much or at all, be thankful you’re able to contribute to any of the plans above. Saving is sometimes quite challenging and every dime we are able to sock away counts!
A little lagniappe: All of the above plans can be self-directed. Self-directed plans allow owners to choose their own investments to build income on a tax-sheltered basis. You gain control of your investing funds and the freedom to choose from an incredibly large pool of alternate assets that can boost the income in your portfolio.