John R. Bullis: New limits for 2018 retirement savings
December 4, 2017
It's good Congress has linked many retirement plans with inflation. Here are some of the main 2018 dollar limits.
401(K) maximum contribution increases in 2018 to $18,500. That's $500 more than it was for 2017. And if you were born before 1969 (will be age 50 by 12-31-18) the "catch-up" contribution is an additional $6,000.
If there's a 401(K) plan where you work, please sign up to have at least some contributions withheld from your wages. Later, if your situation allows, be sure to increase the contribution until you're doing the maximum amount. It's really sort of like moving money from one pocket of your pants to another pocket. You still own the money. There are some restrictions about drawing the money out, but it will grow in a tax deferred manner. The government helps you by reducing your taxable wages by the contribution which reduces your income tax. And in some instances there are other tax saving benefits possible.
That increased contribution limit also applies to the school 403(b) and government 457 plans.
The limit for contributions to regular IRA and ROTH IRA accounts remains at $5,500 a year. One of the great features of the IRA accounts is you can pay it in before 4-15-18 and still get a 2017 income tax deduction! Of course, it's better in the long run if you pay the contribution to an IRA account early so there is more time for it to grow tax deferred. Like the 401(K), 403(b) and 457 plans, you will be taxed on the withdrawals when that happens sometime in the future. You can split the IRA contribution, some to regular IRA, some to ROTH, but the total is limited to $5,500 plus $1,000 more if you're age 50 in 2018.
The limit on contributions to SIMPLE retirement plans stays the same at $12,500 and folks age 50 and older can do an additional $3,000 contribution each year.
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The deduction phaseout for regular IRAs start a little higher in 2018. Adjusted Gross Income (AGI) for single taxpayers goes from $63,000 to $73,000. For married folks, it's $101,000 to $121,000. Those phaseouts are for single folks who have a retirement plan where they work. For a married couple, if one of them has a retirement plan at work then the phaseouts apply.
There are many other retirement plans, such as sole owner retirement plans that can have as much as $53,000 of contributions-depending on several factors such as net profits. It could be a contribution limited to 25 percent of the wages, or 20 percent of Schedule C profits. It's worth checking out.
Did you hear? "Never be afraid to take on a really tough problem. When you solve it, the benefits will be that much greater," said Carl Gerstacker, business executive.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.