On November 1, 2018, the IRS announced the 401(k) and IRA contribution limits for 2019. The IRA limit increases from $5,500 in 2018 to $6,000 in 2019.
Individuals over age 50 may make a catch-up contribution of $1,000, for a total transfer of $7,000 in 2019.
Traditional IRA contributions from earned income are tax deductible. The traditional IRA has two main tax benefits - contributions are tax deductible and
grow tax free. If you are covered by a qualified retirement plan at your work place, the IRA deduction may be reduced or phased out.
- Single Taxpayers with Workplace Plans - The IRA contributions for single taxpayers are phased out for taxpayers with income of $64,000
to $74,000.
- Married Couple with Workplace Plans - A couple with joint income of $103,000 - $123,000 will be subject to the IRA phaseout.
- Married and No Workplace Plan - If one spouse does not have a workplace plan and the other spouse is covered in his or her workplace, the phaseout on a
joint return is $193,000 to $203,000.
A Roth IRA is funded with after-tax income. It grows tax free and most distributions are tax free. Roth IRA owners may withdraw tax-free contributions at
any time. After the taxpayer's Roth IRA has been in existence for five years and the owner is over age 59½, amounts may be withdrawn tax free.
The Roth IRA phaseout limits also increase in 2019.
- Single Individuals - The Roth phaseout for single taxpayers next year will be $122,000 to $137,000.
- Married Couples - For married couples, the Roth IRA phaseout is $193,000 to $203,000.
Many businesses maintain 401(k) plans and most nonprofits provide 403(b) plans. The 2019 limit for an employee contribution to a 401(k) or 403(b) plan is
$19,000. Employees over age 50 may make a catch-up addition of $6,000, for a total transfer of $25,000.
If your employer offers both a traditional 401(k) and a Roth 401(k) plan, you may allocate your employee contribution to one or both funds. The traditional
401(k) amounts are deductible, but the Roth 401(k) contributions are after-tax.
Many employers match their employees' 401(k) contributions. This is a good way to encourage employee participation in a 401(k) plan. The employer match is
used to fund the employees' traditional 401(k) accounts. Employees may still make contributions to Roth 401(k) accounts up to the $19,000 or $25,000
limit.
