The IRS recently announced increases to the contribution limits on retirement plans for tax year 2015. The higher limits provide an opportunity for savers to accelerate pre-tax contributions to their retirement plans. An employee aged 50 or older will be able to make pre-tax contributions of as much as $24,000 ($18,000 plus a $6,000 catch-up contribution) into some of the more common types of qualified retirement plans starting next year.
Here are some highlights of the new retirement plan limitation rules for 2015:
- 401(k) contributions. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will increase from $17,500 to $18,000.
- 401(k) catch-up contributions. The annual catch-up contribution limit for employees aged 50 and older who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will increase from $5,500 to $6,000.
- SIMPLE IRA contributions. The contribution limit for SIMPLE retirement accounts, common in smaller businesses, will increase to $12,500 next year, up from $12,000. The catch-up contribution to SIMPLE plans for employees 50 and older will increase to $3,000, up from $2,500.
- Traditional IRAs. The limit on annual contributions to an Individual Retirement Arrangement remains unchanged at $5,500. The catch-up contribution limit for individuals aged 50 and older is fixed by law and will remain at $1,000.
The income phase-out ranges for contributions to traditional IRAs, Roth IRAs and the “saver’s credit” (also known as the retirement savings contribution credit) are among additional COLA adjustments to retirement plan limitations for 2015.
As troubling information continues to emerge indicating that Americans are unprepared for retirement (AARP recently reported the median retirement account balance in the U.S. is $3,000 for working-age households) any changes that make saving for retirement easier are welcome news.
Richard Behrendt is director of estate planning at Elm Grove-based Annex Wealth Management.