Highlights of the IRA and 401K Announcements for 2017

Posted on Jan 2, 2017

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source: coastalwealthmanagement24.com

source: coastalwealthmanagement24.com

As per the latest IRS announcement, there’s no change in the 2017 contribution limits for IRA and 401(k) savings. However, there are other tweaks that will help workers, small business owners and self-employed individuals put more after-tax money into their retirement savings.

Self-employed individuals and small business owners can now save $54,000 in an SEP IRA or Solo 401K (up from $53,000 in 2016), and the new compensation limit is $270,000 (from $265,000 in 2016).

For workers under the age of 50, the maximum IRA contribution is $5,500, and $18,000 for 401K accounts. With catch-up contributions set at $1,000 for IRAs and $6,000 for 401Ks, these limits have remained unchanged through 2015 and 2016.

Changes to Income Limits: Traditional and Roth IRA
The main changes to retirement plans in 2017 are found in the maximum income limit for Roth IRAs and traditional IRA plans. These minor changes have no bearing on contribution limits, only on the income phase-out limit for contributing to a Roth IRA or taking tax deductions on traditional IRAs.

Here’s the new AGI (adjusted gross income) limit for both plans:

  • Income Limits for Traditional IRAs – With a traditional IRA, the amount of money you earn has no effect on your ability to contribute to the account. The restriction lies in tax-deductible contributions to the IRA, which are affected by your AGI as well as employer-provided retirement savings.
    • What has Changed?
      If you’re covered by an employer plan and filing as the single/head of household, the new AGI threshold is $62,000-$72,000 (from $61,000-$71,000 in 2016). For filing jointly with your spouse, the new AGI threshold is $99,000-$119,000 (from $98,000-$118,000 in 2016).If you’re filing jointly and your spouse is covered by an employer plan (but you aren’t), the AGI threshold is now $186,000-$196,000 (from $184,000-$194,000 in 2016).
    • What hasn’t Changed?
      If you’re single and not covered by an employer plan, or filing jointly and neither you nor your spouse are covered by an employer plan, there’s no income limit applicable. If either you or your spouse are covered by an employer plan, and you’re married but filing separately, the AGI threshold remains $0-$10,000.
  • Income Limits for Roth IRAs – Your ability to make direct contributions to a Roth IRA is restricted, based on a maximum AGI threshold. If you’re above the threshold, the only way to get around this is by investing in a traditional IRA and then converting it to a Roth IRA right away.
    • What has Changed?
      If you’re filing as single, the new AGI threshold is $118,000-$133,000 (from $117,000-$132,000 in 2016).
      If you’re filing jointly with your spouse, the new AGI threshold is $186,000-$196,000 (from $184,000-$194,000 in 2016).
    • What hasn’t Changed?
      If you’re married but filing separately, the AGI limit remains $0-$10,000.
      The additional tax breaks in 2017 are designed to encourage retirement planning efforts (reducing reliance on social security) among the younger generation as well as those nearing retirement. Make the most of these and other tax breaks now!
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