IRS Announces Contribution Limits for Retirement and Other Savings Plans

There is plenty of good news for many retirement and other savings plan holders regarding 2015 contribution limits. While traditional and Roth IRAs contributions remain the same as 2014, other plans see an increase in limits—and every little bit counts!

Below is a basic recap of the self-directed IRAs and other plans Advanta IRA administrates that fall within these new limits. Our firm does not provide tax advice, but most of this information is readily available on the Internal Revenue Services’ web site. If you have specific questions regarding how these changes affect your self-directed savings plans, please contact us. However, you should also contact a tax or financial advisor you trust to help guide you in making the appropriate contribution limits in your account(s).

All of these retirement accounts allow for tax-free or tax-deferred savings for retirement. The same advantages are provided for health and education savings plans.

Traditional and Roth IRAs

Traditional IRAs and Roth IRAs are the two major kinds of individual retirement accounts and the prime difference between the two is the time at which they are taxed. Contributions to a traditional account are tax deductible, and the account owners will pay tax on the funds in a traditional IRA at the time they begin taking distributions upon retirement. Roth IRA contributions are not tax-deductible, but the Roth IRA allows for tax-free distributions in retirement. Note that the contribution and distribution rules also differ and are key elements to consider when choosing one of these retirement plans. Always consult a tax advisor for proper guidance. While there are no changes in contribution limits for the year 2015, there are some changes in deductibility phase-outs for traditional IRAs and contribution phase-outs for Roths that you must be aware of.

Contribution limits for traditional and Roth IRAs:
Remain unchanged for 2015 at $5500 per year with a $1000 catch up if you are 50 years and older
2014 contribution deadline for both traditional and Roth IRAs is 4/15/2015
2015 contribution deadline: 4/15/16

Traditional IRA deductibility phase-outs:
2014: Singles and heads of households covered by an employer plan with modified adjusted gross incomes (AGI) ranging from $60,000 and $70,000
2015: rises to $61,000 – $71,000

2014: Married filing jointly $96,000 – $118,000
2015: rises to $98,000 – $118,000

Understand that even if you earn too much to make deductible contributions to a traditional IRA, you can still make contributions—they just will not be deductible on your tax returns.

Roth IRA contribution phase-outs:
2014: The AGI phase-out for singles and heads of households making contributions is $114,000 – $129,000
2015: AGI phase-out range is $116,000 – 131,000

2014: phase-out for married filing jointly – $181,000 – $191,000
2015: phase-out for married filing jointly rises to $183,000 – $193,000

If your income exceeds the above limits for a Roth IRA, you would not be able to directly contribute to a Roth IRA. However, you would have the option to open what is considered a non-deductible traditional IRA and then convert those funds to a Roth IRA. Consult with your financial advisor or CPA before doing so in order to facilitate this transaction within compliance of IRS standards.

Savings Incentive Match Plans for Employees (SIMPLE plans)

In this case, the term “employee” includes a self-employed individual who receives earned income. This salary reduction arrangement allows the employee to defer a portion of their compensation into this account, before taxation, each pay period. The employer then contributes the salary deferral, along with a matching amount (usually 3%), on behalf of the employee.

Contribution limits:
2014: $12,000 or $14,500 with catch-up contribution if over 50 years of age
Employers typically match up to 3% of an employee’s salary deferral contributions, dollar-to-dollar.
2014 contribution deadline for employees: 01/30/2015
2014 contribution deadline for employers: Business tax filing deadline, including extensions

2015: $12,500 or $15,500 with catch-up if 50 and over
2015 contribution deadline for employees: 01/30/2016
2015 contribution deadline for employers: Business tax filing deadline, including extensions

Simple Employee Pension (SEP plans)

These plans allow employers to make contributions towards employees’ retirement plans without the common hassles of more intricate plan types. SEP IRAs are low-cost, easy plans utilized by the self-employed, partners, and owners of corporations.

2014 Max Dollar Allocation: $52,000 / Max considered compensation: $260,000
The maximum contribution amount to a SEP plan is 25% of the employee’s compensation.
2014 contribution deadline for employees: Business tax filing deadline, including extensions

2015: $53,000 based on a percentage of their salary as an employer
2015 compensation limit used to calculate contribution percentage is $265,000
2015 contribution deadline: Business tax filing deadline, including extensions

Individual(k) or Solo 401(k)plans

These plans are for small business owners who have minimal employees: themselves, their spouses, and/or their partners (and partners’ spouses). Employers are also considered employees, allowing contributions to these plans in the way of employee salary deferrals and also by making employer profit sharing contributions. However, the combined salary deferral and profit sharing contributions cannot exceed the 2014 limit of $52,000 (or higher with catch-up contribution) limit. In 2015, the total contributions cannot exceed $52,500 (or higher with applicable catch-up contribution).

Contribution limits:
2014 employee contributions: $17,500 or $23,000 including catch-up contributions for those age 50 or older
2014 employer contribution: up to 25% of compensation, but total contributions (employee and employer contributions) are not to exceed $52,000 per person ($57,500 if over the age of 50)
2014 employee contribution deadline: 12/31/2014
2014 employer contribution deadline: Business tax filing deadline, including extensions

2015 employee contributions: $18,000 (or $24,000 if age 50 and over)
2015 employer contributions: up to 25% of compensation, but total contributions (employee and employer contributions) are not to exceed $52,500 per person ($58,500 if over the age of 50)
2015 employee contribution deadline: 12/31/2015
2015 employer contribution deadline: Business tax filing deadline, including extensions

Health Savings Accounts (HSAs)

These accounts allow individuals and families to make tax-deductible contributions and tax-free withdrawals for qualified medical expenses.

2014: Individual plan holders (under age 55) can contribute $3,300 or $4,300 with catch-up inclusions for ages 55-65 (and also for those who are 65 and over if qualified)
2014: Family plan (under age 55): $6,550 or $7,550 with catch-up for ages 55-65 (and 65 years old and over if qualified)
2014: Contribution deadline is 4/15/15

2015: Individual plan holders can contribute $3,350; family plans $6,650. Both include catch-up contributions of $1000
2015: Contribution deadline is 4/15/16

Education Savings Accounts (ESAs)

This plan’s benefits are similar to a Roth IRA, but the funds must be spent on qualified educational costs for the beneficiary. Contributions are not tax-deductible, but the earnings grow tax-free and subsequent distributions from the ESA are tax-free as well. If the total distributions are higher than the qualified expenses in a given year, the excess distribution is then taxed at the account holder’s rate rather than the contributor’s rate (which is typically higher).

2014: contribution limit (up to age 18) is $2000
To qualify for this account: Single – $95,000 – 110,000 / married filing jointly: $190,000 – 220,000
2014 deadline for contributions is 4/15/15

2015: contribution limit remains at $2000
2015 deadline for contributions is 4/15/16

If you have questions regarding this information or if you would like to learn more about self-directed IRAs and other plans that allow you total control in making your own investment decisions, please contact us.

About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.