It appears that there is another casualty of the government’s inflation calculation that will affect retirement: due to the cost-of living index not reaching the threshold that would have triggered an upward adjustment, the Internal Revenue Service announced Wednesday that retirement plan contribution limits would remained unchanged for 2016.
Elective contribution limits will remain unchanged at $18,000 for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan. The catch-up contribution for people aged 50 and over will stay at $6,000, which maximizes their contribution at $24,000. Similarly, the annual contribution limit to an individual retirement account (IRA) will remain $5,500, with the catch-up contribution remaining $1,000.
The deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified adjusted gross incomes (AGI) within a certain range. For singles and heads of household who are covered by a workplace retirement plan, the income phaseout range will remain unchanged at $61,000 to $71,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phaseout range will remain $98,000 to $118,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phaseout range remains $0 to $10,000.
There will be some changes for 2016, however. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction of the IRA contribution will be phased out when the couple’s income lies between $184,000 and $194,000, up from $183,000 and $193,000 in 2015. (Income level affects whether the couple is eligible to contribute up to the limit or a reduced amount into an IRA.) The same income range will apply to married taxpayers filing jointly and making contributions to a Roth IRA. For singles and heads of household, the tax deduction phaseout range will be $117,000 to $132,000, up from $116,000 to $131,000.
The adjusted gross income limit for the saver’s credit for low-and moderate-income workers in 2016 will be $61,500 for married couples filing jointly, up from $61,000; $46,125 for heads of household, up from $45,750; and $30,750 singles and married individuals filing separately, up from $30,500.