Along with cost of living adjustment news by the Social Security Administration, October is also the month when the IRS informs us of any changes to income and contribution limits effecting retirement plans. This year, the agency has announced new, higher contribution limits in 2018 for some retirement savings accounts.
Barring any changes enacted due to possible tax reform, the annual limit on contributions to 401(k) or other similar type of retirement plans for 2018 is now $18,500, up from the current limit of $18,000. And if you're 50 or older at any time during the year (even if your 50th birthday falls on Dec. 31), you can also make additional catch-up contributions of an additional $6,000, for a total annual contribution of $24,500.
Individuals who participate in these plans need to know these new limits as they begin to think about their cash flow and financial planning for 2018.
New income levels for IRA contribution deductibility
Contribution limits for IRAs, unfortunately, are unchanged for 2018. For those under age 50 who have earned income from wage earnings, this remains $5,500. Remember that this limit applies to any type of IRA in 2018. People 50 and older in 2018 can make an additional catch-up contribution of $1,000, for a total annual IRA contribution of $6,500.
However, the IRS did increase the income levels used for determining eligibility to make deductible contributions to traditional IRAs, contribute to Roth IRAs and even to claim the Savers Tax Credit.
Single taxpayers who are eligible to participate in a workplace retirement plan are also eligible to make a tax-deductible contribution to an IRA if their adjusted gross income is below $63,000 ($101,000 for marrieds) in 2018. This is up from $62,000 (single) and $99,000 (married) in 2017. This deduction is phased out when AGI falls in the range of $63,000 to $73,000 (singles) and $101,000 to $121,000 (marrieds).
The income range for making contributions to a Roth type IRA in 2018 is $120,000 to $135,000 (singles and head of household) and $189,000 to $199,000 (marrieds).
In 2018, the income limit for the savers tax credit (also called the "retirement savings contributions tax credit"), which is a tax credit for low- to middle-income workers who contribute to a retirement plan or IRA, is $63,000 for married workers (up from $62,000), $47,250 for head of household and $31,500 for single filers (up from $31,000).
New contribution limits for health savings accounts
The 2018 annual contribution limit that individuals with single medical coverage can contribute to a health saving account is $3,450, an increase of $50 from 2017. The annual HSA contribution limit is $6,900 for those covered under qualifying family medical plans (up from $6,750 in 2017). But if you're 55 or older in 2018, you can contribute an additional $1,000, or total of $4,450 to an HSA for singles and $7,900 for families per year.
If you're enrolled in a high-deductible health plan, you really should take advantage of this special savings opportunity. Make it a point to set aside pretax money into an HSA because it grows tax-deferred and can be withdrawn tax-free in retirement when used to reimburse yourself for your out-of-pocket qualified medical expenses.