On Thursday, the IRS released its new contributions levels for tax-deferred retirement plans in 2015. The contribution levels were increased as well as the maximum incomes levels for eligibility. This could be a benefit for investors looking to save more at a tax-deferred status. Here are a few of the changes that will take effect in January:
- For those who are covered by an employer provided retirement plan and want to contribute to an IRA, the phaseout range on modified adjusted gross income (MAGI) on deductions for traditional IRAs has increased to $61,000-$71,000 for singles and heads of household. For married couples filing jointly, the new phaseout range is $98,000-$118,000 for employees covered by a workplace retirement plan and $183,000-$193,000 for spouses of employees covered by a workplace retirement plan.
- For Roth IRA contributions, the MAGI phaseout range has increased to $116,000-$131,000 for singles and heads of household and $183,000-193,000 for married couples filing a joint return.
- Investors may now save $18,000 in their 401(k), 403(b), most 457 plans and the Thrift Savings Plan.
- The “catch-up” contribution for investors aged 50 and older who contribute to the above plans has increased to $6,000 annually.
- The limit for defined contribution plans increased to $52,000 annually and the annual compensation limit increased to $265,000.
- The MAGI limit for the saver’s credit, or retirement savings contribution credit, is $30,000 for singles, $45,750 for heads of household and $61,000 for married couples filing jointly
Even if an investor does not meet the income requirements for Roth IRA or IRA contributions, there is a “Backdoor” way of making a Roth contribution. It involves making a non-deductible contribution to an IRA, which has no income limitations, and then immediately converting the contribution to a Roth IRA. There is an equation that determines the tax liability of the conversion that factors in Traditional, SEP and Simple IRA assets. The percentage of your total IRA assets that this conversion represents will be tax-free. This strategy is useful for investors who want to make a Roth IRA contribution, but are ineligible, and have little to no assets held in traditional IRA accounts.