IRS Announces Cost Of Living Adjustments For The 2019 Tax Year

Dec 4, 2018

IRSContribution Limits for 2019The Internal Revenue Service (IRS) recently released cost of living adjustments (COLA) affecting dollar limitations for pension plans and other retirement-related items for the 2019 tax year.

The adjustments provide more savings opportunities in the coming year and possible benefits from related tax deductions. Here’s a summary of some changes that could impact your clients’ financial strategies. For technical guidance, refer to the IRS Notice 2018-83.1

Contribution Limits

  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal Thrift Savings Plan is increased from $18,500 to $19,000.1
  • The limit on annual contributions to an IRA is increased from $5,500 to $6,000.1
  • The additional catch-up contribution for individuals 50+ years old remains the same at $1,000 for IRAs and $6,000 for workplace plans.1

Phase Outs

Income ranges that dictate eligibility for tax deductible contributions to traditional 401(k) accounts and Roth IRAs all increased for the coming tax year. While clients can generally earn a little more and still qualify for deductions, those same deductions may be gradually eliminated — or phased out — based on if they (or their spouse) was covered by a retirement plan at work, filing status and income.1

Traditional 401(k) income phase-out ranges to keep in mind for 2019:

  • Single taxpayers covered by a workplace retirement plan: $64,000 to $74,000 (up from $63,000 to $73,0000).1
  • Married couples filing jointly (spouse making IRA contributions covered by a workplace retirement plan): $103,000 to $123,000 (up from $101,000 to $121,000).1
  • Married individual filing a separate return, covered by a workplace retirement plan: Phase-out range is not subject to annual COLAs, and remains $0 to $10,000.1
  • IRA contributors not covered by a workplace retirement plan, married to someone who has workplace coverage: couples’ income is between $193,000 and $203,0000 (up from $189,000 to $199,000).1

For Roth IRAs, income phase-outs are as follows:

  • Single and heads of household: $122,000 to $137,000 (up from $120,000 to $135,000).1
  • Married couples filing jointly: $193,000 to $203,000 (up from $193,000 to $203,000 (up from $189,000 to $199,000).1
  • Married individual filing a separate return, who makes contributions to a Roth IRA: Phase-out range is not subject to annual COLAs, and remains $0 to $10,000.1

Retirement Savings Contributions Credit (“Saver’s Credit”)

Low- and moderate-income workers may qualify for a tax credit equivalent to 10%, 20% or 50% of their retirement account contributions, with a credit cap of $2,000 for individuals and $4,000 for married couples filing jointly.2 The “Saver’s Credit” is available to taxpayers provided they meet certain eligibility requirements and the following adjusted income thresholds:

  • Married couples filing jointly: $64,000 (up from $63,000).1
  • Heads of household: $48,000 (up from $47,250).1
  • Singles and married individuals filing separately: $32,000 up from $31,500).1

For an easy to reference guide on the new 2019 Contribution limits, click here.

SOURCES:

1IRS, 401(k) contribution limit increases to $19,000 for 2019; IRA limit increases to $6,000, November 1, 2018

2IRS, Retirement Savings Contributions Credit (Saver’s Credit), Website page reviewed/updated November 7, 2018

MGA-2313751.1-1118-1220


Topics: Retirement