How much can you save for retirement in 2019?

You remember that part of How The Grinch Stole Christmas (the Jim Carrey version, of course, because it’s the best one) where — spoiler alert — the Grinch realizes the true meaning of Christmas and his heart grows three sizes?

That basically happened in real life a few months ago, except instead of the Grinch it’s the IRS and instead of “Christmas” it’s “retirement savings.” (The heart-growing thing doesn’t really enter into it. Also Christmas was over a month ago. This was a bad analogy.)

Starting in the 2019 tax year (for filing in 2020), you can contribute even more money toward retirement accounts such as an IRA or 401(k). It’s a Christmas miracle!

Changes to IRA and 401(k) Contribution Limits

Below is a brief summary of the new inflation-adjusted numbers for retirement account contributions; see IRS Notice 2018-83 for more technical guidance.

401(k)s. In 2019, the annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan, is $19,000. That is up from $18,500 in 2018.

SEP IRAs and Solo 401(k)s. In 2019, self-employed individuals and small business owners could contribute $56,000 to a Simplified Employee Pension (SEP) IRA or a solo 401(k). That is up from $55,000 in 2018. SEP IRA contributions are limited by a somewhat complicated calculus based on your compensation.

SIMPLE IRAs. In 2019, the annual contribution limit to SIMPLE retirement accounts is $13,000, up from $12,500 in 2018. The SIMPLE catch-up limit remains at $3,000.

Defined Benefit Plans. Though no longer as common as they once were, defined benefit plans are a type of pension plan utilized by high-earners. The annual benefit limitation increases to $225,000 in 2019, up from $220,000 in 2018.

Individual Retirement Accounts (IRAs). Tax law uses a formula to decide when IRA contribution limits increase, and for 2019 it said “let’s help people save a little bit more money.” (I’m paraphrasing, of course.) For the 2019 tax year, you can contribute up to $6,000 to an IRA (either a tax-deferred IRA or a Roth or a little of both), up from $5,500 last year. (Remember: you can make 2018 IRA contributions until April 15, 2019.)

Deductible IRA Phase-Outs. IRAs are a great way to save money, but their tax-deferred advantages are not available to everyone. If you earn enough money, you cannot deduct the contribution from your taxes. (You can still contribute; it’s just nondeductible.)

For the 2019 tax year, the deduction phases out for singles and heads of household with modified adjusted gross incomes (AGI) of $74,000, up $1,000 from 2018.

Roth IRA Phase-Outs. Taxpayers over a certain income cannot open a Roth IRA. In 2019, singles making more than $137,000 cannot contribute to a Roth IRA, up from a $135,000 limit in 2018.

However, there is a way to take advantage of Roth IRAs even if you cannot contribute to one directly. Congress recently changed tax laws to allow certain taxpayers to open a nondeductible IRA and convert it to a Roth IRA. Speak with a financial adviser for more information on this topic.

Retirement is Part of Your Estate Plan

Financial planning is a crucial part of estate planning, because without proper planning, you may not even have an estate to leave behind. For any retirement-specific questions, we recommend you consult with a CPA or financial adviser.

For more information about estate planning, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation appointment. Click the link below for our contact information:

David M. Postic is an associate attorney at Postic & Bates, P.C. His practice includes estate planning, probate, real estate, adoption, business law, and litigation.

You can email David through our Contact Us page or by calling our office at (405) 691-5080.

[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]