5 changes to retirement savings for 2018
2018 brings changes to several of the basic retirement savings rules and limitations. Several types of retirement savings contribution limits have increased, allowing you to drop a bit more into these accounts (and reap enhanced tax benefits as a result). Here are the most important new guidelines you'll need to follow this year for your retirement contributions.
401(k) contribution limits
401(k) account holders will be happy to hear that the annual contribution limit is going up to $18,500 in 2018. Catch-up contributions for savers aged 50 and older will continue to be capped at $6,000 per year, meaning that these savers will be able to contribute a total of $24,500 per year to their 401(k) accounts.
Roth IRA income limits
If your income for the year exceeds a certain limit, then you're not allowed to contribute to a Roth IRA for the year. The limits are going up somewhat in 2018. If your tax filing status is single or head of household, then your ability to contribute to a Roth IRA will be phased out over the annual income range of $120,000-$135,000 for 2018 (meaning that you'll only be able to make a partial contribution based on where your income falls in this range).
For married taxpayers filing jointly, the phaseout range is $189,000 to $199,000 in income. And for married taxpayers filing separately, the range remains a mere $0 to $10,000. If your income is above the phaseout range for your filing status, you can't contribute to a Roth IRA at all (except through a backdoor contribution).
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IRA deduction limits
Taxpayers who have access to an employer-provided retirement savings account such as a 401(k) may not be able to deduct contributions to their IRA from their taxable income. Their ability to deduct IRA contributions phases out over a certain income range and disappears beyond that range. The phaseout range for single and head-of-household filers is rising to $63,000-$73,000 in 2018. The phaseout range for married-filing-jointly taxpayers will now be $101,000-$121,000 (if the contributing spouse is the one covered by an employer-based plan) or $189,000-$199,000 (if the contributing spouse is not the one who is covered). Finally, the phaseout range for married-filing-separately taxpayers remains $0-$10,000.
Saver's Credit income limits
The Saver's Credit (more formally known as the Retirement Savings Contributions Credit) is a tax credit that you may be able to claim for making retirement savings contributions. In order to qualify for this tax credit, you need to be below certain income limits for the year. Those income limits have now gone up slightly for 2018 to $63,000 for married-filing-jointly taxpayers, $47,250 for heads of household, and $31,500 for single and married-filing-separately taxpayers.
HSA contribution limits
Most people don't think of health savings accounts, aka HSAs, as retirement savings accounts. However, an HSA can actually be a better retirement savings account then any IRA or 401(k). That's because HSAs are the only accounts that enjoy a triple tax advantage: Contributions to an HSA are tax-deductible, the money inside the account is exempt from capital-gains and dividend taxes, and the distributions you take from the account are also tax-free if you spend the money on qualified medical expenses. What's more, once you hit age 65, you can spend your HSA money on anything -- not just healthcare -- without incurring a tax penalty (though you'll pay income tax on the withdrawal).
That's why it's such good news that the contribution limits for HSAs are going up in 2018. The new limits are $3,450 per year for self-only HSAs and $6,900 for family coverage HSAs.
The changes to retirement savings rules for 2018 are uniformly positive, so take advantage of them by cranking up your contributions in the year to come. The more money you save now, the more you'll have to indulge yourself with once you retire.