If you were hoping to increase your 401 (k) contributions to your employee retirement plan next year, you’re going to be disappointed. The IRS announced the maximum employee retirement contribution will remain at $18,000. That’s not the only change, however. While the contributions remain the same, it doesn’t mean there won’t be other adjustments. The phase-out income rules for Roth IRAs and limits on who can take a tax deduction for contributions to a traditional IRA are changing. Here’s what that means for you:
401 (k) by the Numbers
If you don’t have a workplace retirement plan but your spouse is covered by her employer’s plans, and provided your total income is less than $184,000, you’ll be able to take a full deduction up to the limits on your traditional IRA contribution. If you earn between $184,000 and $194,000 you can take a partial deduction, and if you make more than $194,000, you won’t be able to take a deduction at all. Those thresholds have increased from $183,000 and $193,000 for 2015. The same holds true for the Roth IRA income phase-out range as well. For married couples filing jointly, it’s the same $184,000 to $194,000 and for singles and heads of household the range has also increased, to $117,000 and $132,000, respectively.
This means if you make too much money, you can’t contribute the full amount (or at all) to a Roth, though anyone with earned income can make a non-deductible contribution to a traditional IRA.
Retirement Savings Contribution Credit
Meanwhile, the maximum income for taking a saver’s credit, or “retirement savings contribution credit,” is now $61,500 for married couples filing jointly. This inched up from $61,000 in 2015. For heads of households, it’s $46,125 and for singles, it’s $30,750 for singles, up from 2015 levels of $45,750 and $30,500, respectively. Catherine Collinson, president of the Transamerica Center for Retirement Studies explains, “Now, even more low- and moderate-income American workers can benefit from this valuable tax incentive to save for retirement.” She goes on to say, “The saver’s credit literally pays workers to save for retirement. It’s a free matching contribution from the IRS.”
Note that the annual limit contributions to an IRA remains $5,500 with catch up contributions for those older than 50 also not changing. It will be $1,000 for 2016.
Is it time to review your financial planning efforts after retirement? It’s never too late to make changes. Better still, want to ensure the proverbial bases are covered before you retire? Call us today at (603) 894-4141 or (978) 969-0331 to learn how to make the most of all of the available estate planning tools that can make a big difference in how much you have when retire. Our experienced estate planning attorneys can help you better protect your assets, lower your tax burden and ensure your loved ones are covered after you’re no longer here.
Daniel DeBruyckere
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