April 15th is going to be upon us before we know it. So, it’s time to start preparing your taxes and strategizing with your income tax professional. One item at the top of your to-do list should be about 2019 contribution limits to your retirement plans. Depending on the type of account you have, those deposits can reduce your taxable income burden—especially if you can max those limits out.
Hopefully, you’re saving a bit from every paycheck to deposit into your retirement plan. But there are several retirement plans that the IRS allows you to open and fund to up to the day you file your taxes to count toward this tax year. Whether you are employed by a company that offers retirement benefits or self-employed with an individual plan, you should know what your 2019 contribution limits are so you can maximize the earning potential of your account.
2019 Contribution Limits and Deadlines You Should Know
All of the accounts mentioned below can be self-directed if you want to control the investment decisions in your retirement plan.
Traditional and Roth IRAs
- These IRAs must be opened and funded by April 15 of the following year in order to count on current year’s tax return. (I.e., by April 15, 2020 to count for the 2019 tax year.)
- The annual maximum deposit for both plans is $6,000 (or $7,000 if you’re 50 years of age or older, thanks to the catch-up provision).
The deadline to open a SIMPLE IRA is October 1 in the current year. You’ve missed that date for 2019. But, you still have a bit of time to contribute to the plan to count for this year if you established one in time.
- Employee compensation deferrals can be made no later than December 31.
- Employer contributions must be made by the date of filing your return. If you filed an extension, the employer portion can be extended, as well, but must be made before the date the return is filed.
- Employees can contribute up to $13,000 a year (or $16,000 if you’re 50 or older).
- The employer portion is limited to 1-3 percent of an employee’s annual compensation.
You must open and/or contribute to a SEP IRA before you file your tax return.
- If you file an extension, you gain even more time to open and fund the account, provided that this occurs before the due date of your tax return. For example, for a 2019 SEP contribution, you would have potentially until October 15, 2020 (which is the deadline for all extensions) to open and contribute to your SEP account.
- 2019 contributions cannot exceed 25 percent of your compensation or $56,000 (whichever amount is less).
Individual 401(k) Plans
- Individual or solo 401(k) plans must be established by December 31. Employee salary deferrals should be withheld and contributed to the plan no later than January 31st of the following year. (I.e., January 31, 2020 to count for 2019.)
- Employer profit-sharing matches are due by the date you file your return, which includes any extensions.
- The annual contribution limit for salary deferrals is $19,000, but if you’re 50 or older that total rises to $25,000.
- If your plan involves a profit-sharing match, you as the employer, can contribute up to 25 percent of your compensation or 25 percent of your income if you’re self-employed.
- Your total salary deferral plus profit sharing match caps out at $56,000, or $62,000 if you’ve reached the age of 50 or older.
Your Takeaway on 2019 Contributions and Deadlines
Understanding the IRS contribution rules of your retirement plan is just as important as choosing the right plan. The information provided above is a guideline, but you should always consult your tax or financial advisor to ensure your transactions are in compliance with IRS rules and regulations.
If you have questions about this article or wish to learn more about self-directed IRAs, please contact Advanta IRA. We are happy to answer questions you may have pertaining to self-directed accounts and the rules that govern them.
This article was published on November 10, 2018 but has been updated with current information regarding 2019 contribution limits and other deadlines.