The IRS has announced cost-of-living adjustments for pension plans and other retirement accounts for 2018 in Notice 2017-64, which includes contribution limits on 401(k) plans.
Section 415 of the Internal Revenue Code provides for dollar limits on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Treasury Secretary annually adjusts these limits for cost-of-living increases, and the section requires that the adjustments are to be similar to those used to adjust amounts under Section 215(i)(2)(A) of the Social Security Act.
Contribution limits for employees enrolled in 401(k), 403(b) and most 457 plans, plus the federal Thrift Savings Plan, have increased by $500 — to $18,500 from $18,000.
Income allowances that determine taxpayers’ eligibility for deductible contributions to individual retirement accounts (IRAs) and Roth IRAs, and to claim the saver’s credit, also have increased for 2018.
Here are the key takeaways regarding phase-out income ranges for IRAs and Roth IRAs:
- If taxpayers or their spouses were covered by a retirement plan at work, the deduction for contributions may be phased out until it is eliminated. That depends on the filing status and income. If there is no retirement plan at work, the phase-outs don’t apply.
- For single taxpayers covered by an employer’s retirement plan, the phase-out ranges from $63,000 to $73,000, an increase from $62,000 to $72,000.
- For married couples filing jointly, where the spouse making the contribution is covered by a workplace plan, the phase-out is from $101,000 to $121,000, up from $99,000 to $119,000.
- For an IRA contributor who is not covered by a workplace plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $189,000 and $199,000, up from $186,000 and $196,000.
- For a married taxpayer who files a separate return and is covered by a workplace plan, there is no annual cost-of-living adjustment and remains at $0 to $10,000.
- The income phase-out range for taxpayers contributing to a Roth IRA is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000.
- For married couples who file jointly, the phase-out range is $189,000 to $199,000, up from $186,000 to $196,000.
- The phase-out for a married taxpayer who files separately has no cost-of-living adjustment and remains at $0 to $10,000.
The income limit for the so-called Saver’s Credit (Retirement Savings Contributions Credit) for low and moderate-income taxpayers is $63,000 for married couples who file jointly, up from $62,000. For heads of households, the limit is $47,250, up from $46,500. For singles and married taxpayers who file separately, the income limit is $31,500, up from $31,000.
Limits that remain the same from 2017 include annual contributions to an IRA ($5,500) with an annual catch-up limit for taxpayers who are at least 50 years old of an additional $1,000.
For taxpayers participating in 401(k), 403(b), most 457 plans and the federal Thrift Savings Plan, the limit remains at $6,000.
About Terry Sheridan
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.