Saving for your retirement is one of the wisest decisions you can make but to get the best out of this investment, you need to understand the new retirement plans 2016. The Internal Revenue Service (IRS) announced the new retirement plans 2016 back in October 2015.
The annual changes to the limits are based on a changing economic outlook. As a suave investor, it is important to keep abreast of these new limits though experts have observed that the pension plan limitations will not change much. In the modern investment world, you need to be aware of every minor change that affects your future financial freedom.
The New 2016 Retirement Plan Limits
This table summarizes all the changes against the previous 2015 limits:
Looking at the above table alone is not enough to give you an idea of what has changed. In fact, experts say the tables IRS releases when making these changes are never enough, which calls for expert advice from a financial planner in demystifying the numbers and making the right decisions.
Some of the takeaways from these numbers include:
- IRA contributor who is not covered by the employer but is married to a spouse who is covered will see some changes because their deductions will be phased out if their income is between $184,000 and $194,000. This is up from $183,000 and $193,000 in 2015.
- The AGI limit for the saver’s retirement savings contribution credit for low and moderate income earners who file jointly with their partners has risen to $61,500 from $61,000 in 2015. The saver’s credit for heads of households rises to $46,125 from 2015’s $45,750 while saver’s credit for singles and married individuals filing jointly will now be $30,750 up from $30,500.
- Another change is the AGI phase-out range for Roth IRA taxpaying contributors, which changes to $184,000 to $194,000 for married couples filing jointly up from $183,000 to $193,000 in 2015. The phase-out range of singles and heads of households changes from $116,000 to $131,000 to $117,000 to $132,000 in the new retirement plan limits.
There are many aspects of your retirement limits that remain unchanged. For instance, the low-inflation has enabled the phase-out range to remain at $61,000 to $71,000 for single and heads of households. Elective retirement plans contribution limits also remain unchanged for 2016 for employees who participate in most 457 plans, 401(k), 403 (b) AND Thrift Savings Plan at $18,000.
The limit to annual IRA contributions has also not changed and remains at $5,500. Others include the annual compensation limit under various sections such as 404(l), 408(k), 401(a) and 408 (k).
Other highlights include:
Government Plan Compensation Caps
The annual compensation limit for those eligible individuals in government plans as in effect from July 1 1993 is at $395,000.
Employee Stock Ownership Plans (ESOPs) Distribution Period
Under the limited period used to determine maximum dollar account balance subject to a 5-year distribution period, the dollar amount limit is at $1,070,000. For lengthening of the 5-year distribution period, the dollar amount used to determine this is at $210,000.
Other key points to remember include:
- Regardless of the number of plans you participate in, the limit for salary deferral contribution is $18,000. The salary deferral limit applies to all plans from Thrift Saving Plan to all 401 (k) and 403 (b) schemes. Your catch-up contribution must also not be more than $6,000 for that year.
- Your 457(b) contributions are not aggregated with 401(k), 403(b), Thrift Savings Plan, SIMPLE and SARSEP plans.
- Your contributions cannot exceed $5,500 and $1,000 catch-up contribution if you contribute to more than one Roth IRA or one traditional IRA or both an ROTH IRA and traditional IRA.
- You must note that the annual additional limit of $53,000 does not factor catch-up contributions.
When you meet your financial advisor, you must be aware of these new limits and the impact on your retirement nest egg. This is more crucial if you participate in myriad retirement plans, which can lead to excess contributions attracting hefty taxes.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He brings over 30 years of diverse experience as a financial advisor. Rick takes great pride in giving honest and very experienced advice. Rick can readily converse with business owners and people looking to take control of their retirement accounts.