We do the work that takes away the worry...

Retirement Updates: 2019 IRA & 401(k) Contribution Limits

Shankland Financial tree icon

The IRS has announced the new contribution limits for tax-advantaged retirement plans. Find out the IRA and 401(k) contribution limits for 2019.

Key Takeaways

  • IRA and 401(k) contribution limits have been raised for 2019
  • The change offers an opportunity to increase your tax-efficient retirement contributions

Every year the IRS reviews inflation and other factors to determine the contribution limits for tax-advantaged retirement plans. Some years, they remain unchanged. However, other years—like this year—the IRS increases the amount you can set aside in your 401(k) and Individual Retirement Account (IRA).

As we head into the new year, here’s what you need to know about the IRA and 401(k) contribution limits for 2019 and how you can make the most of your retirement savings.

2019 Contribution Limits for 401(k) and IRAs

For the coming year, it’s possible to contribute more to your 401(k), with the maximum 401(k) contribution rising to $19,000 a year from $18,500. This increase also applies to 403(b) and 457 plans, as well as government Thrift Savings Plans. The catch-up contribution, available to those 50 and older, remains at $6,000.

For IRAs, the 2019 contribution limit has increased from $5,500 to $6,000 a year. This is significant because the IRA contribution limit hadn’t risen since 2013. This gives savers a chance to boost their retirement savings for the first time in a while. Remember that the contribution limit applies to all your combined IRA accounts, so if you have a Roth IRA as well as a traditional IRA, your combined contributions to both accounts can’t exceed $6,000. The catch-up contribution, however, remains the same at an additional $1,000.

What You Need to Know About IRA Income Restrictions

One of the benefits of a traditional IRA is that you can, in many cases, deduct your contributions. However, if you have a retirement plan at your work, or if your spouse does, the ability to deduct your IRA contributions phases out depending on your income and filing status. When you reach a certain income, you can still take a deduction, but not the full amount. After you reach the upper phaseout limit, you can’t claim a deduction at all for IRA contributions.

  • Single taxpayers: Phaseout begins at $64,000 and completes at $74,000
  • Married taxpayers, spouse with workplace plan making contributions: Phaseout begins at $103,000 and completes at $123,000
  • Married taxpayers, spouse has workplace plan, contributor does not: Phaseout begins at $193,000 and completes at $203,000

If you have a plan from your workplace, most likely a 401(k), you have a better chance to claim a deduction for contributions to an IRA, providing a greater incentive to use more than one type of tax-advantaged retirement account.

It’s important to note that the income limits for Roth IRA contributions have also been increased. You can contribute to a Roth IRA with income phaseouts based on your income and filing status:

  • Single or head of household: $122,000 – $137,000
  • Married filing jointly: $193,000 – $203,000

If you’re married and filing separately, the income phaseout range for making Roth IRA contributions remains zero to $10,000.

IRA and 401(k) Contribution Limits 2019: Taking Full Advantage

The new 2019 IRA and 401(k) contribution limits give you a chance to boost your retirement savings in the coming year. By increasing your contributions, you can make a long-term difference in your portfolio. The more you invest today, the better your opportunity for growth, as you potentially take advantage of compounding returns and the tax efficiency of the investments.

Increasing your contributions can be a fairly simple process. By increasing your contribution from your paycheck by $41 each month, you can take full advantage of the ability to set aside an extra $500. On top of that, if you have an IRA as well as a workplace 401(k), it’s possible for you to set aside another $500. If you can spare $82 per month, you can grow your retirement account by contributing an extra $1,000 per year.

Couples also have the chance to increase their ability to plan for a joint retirement. Each spouse can make those contributions to an individual account. With the right approach, a couple could benefit by contributing an additional $2,000 in their retirement accounts in 2019. When compound returns are figured over the course of decades, that extra boost can make a significant difference.

Managing Your Overall Retirement Strategy

Consider consulting with a retirement specialist about how you can make the most of the new contribution limits, based on the types of accounts you contribute to. In some cases, a strategy that uses both traditional and Roth accounts can increase the overall tax efficiency of your retirement portfolio. A holistic approach can help you make sure your retirement goals fit with your other financial objectives, and a retirement professional can sit down with you and give you an outside perspective that keeps you on track.

Setting Financial Goals

Goal Planning Every goal starts with a plan We want to help you stay on course as you pursue your financial goals. A complimentary goal

Read More »