IRS Increases 2019 Retirement Plan Contribution Limits

Every October, the IRS considers whether, due to inflation, the limits for retirement account contributions should be increased. For several years now, a low inflationary environment has meant increases have been scarce. At times, there was even fear that contributions may be reduced due to negative inflation. The Federal Reserve has increased interest rates seven times since December 2016, so that is no longer a concern.

Below we have listed the new contribution limits for various retirement account types.

• IRAs. The contribution limit for IRAs and after tax Roths has increased from $5,500 in 2018 to $6,000 in 2019. Note, the catch-up contribution for individuals over 50 remains the same in 2019 at $1,000. Therefore, an individual over 50 can make a maximum contribution of $7,000.
• 401(k), 403(b), Federal Thrift Savings Plans, and most 457 plans. The IRS has increased the annual contribution limit for these plans from $18,500 in 2018 to $19,000 in 2019. The increase also applies to after-tax 401(k) or Roth 401(k) contributions. Like IRAs, the catch-up contribution for employees over the age of 50 stays the same for 2019 at $6,000. Therefore, an employee over 50 can make a maximum employee deferral of $25,000.
• SEP IRAs. Self-employed individuals’ contribution limit on SEP IRAs increased from $55,000 in 2018 to $56,000 in 2019. Contribution amounts are calculated based on a percentage of compensation. The compensation limit increased from $275,000 in 2018 to $280,000 in 2019.
• Phase-outs for deductible IRA and Roth IRA contributions. For a married couple filing a joint return, where the spouse making the IRA contribution is not covered by an employer plan but is married to someone who is covered, the deduction is phased out between AGI of $193,000–$203,000. If you are the spouse participating in an employer plan, the deduction is phased out between AGI of $103,000 to $123,000. For a married couple filing a joint return, your ability to contribute to a Roth IRA phases out between AGI of $193,000 to $203,000. For folks who make too much to contribute to a Roth, opening a nondeductible IRA and performing a Roth conversion may be an option.

Not everyone may be able to max out their retirement contributions. However, even if you contribute less than the maximum, it is one of the best things you can do for your financial future. This is especially true for those with employers who provide 401(k) matching. This is where employers match employee contributions up to a certain percentage. It’s basically free money. According to research data, only 48% of workers participate in employer-sponsored plans for retirement.[1] Among millennials, participation is even lower, at only 31%.[2] The key is starting as soon as possible and taking advantage of the incentives for saving for retirement.

Feel free to contact David Garcia with any questions by phone 305.448.8882 ext. 224 or email: [email protected].

[1] Pew analysis of 2012 Census Bureau Survey of Income and program Participation data

[2] Pew analysis of 2012 Census Bureau Survey of Income and program Participation data