The Internal Revenue Service has unveiled cost-of-living adjusted figures for retirement account savings for 2014, and there is a a bit more room for savings for the self-employed but not for wage and salary earners. Of course, everyone should learn about the changes to make sure they are making the most of their retirement savings to the extent they are able to.
SEP IRAs and Solo 401(k)s - For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) goes up from $51,000 in 2013 to $52,000 in 2014. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the new compensation limit used in the savings calculation is $260,000, up from $255,000.
Defined Benefit Plans - The limitation on the annual benefit of a defined benefit plan increases from $205,000 in 2013 to $210,000 in 2014. That means that high-earning self-employed folks can stuff more into these powerful pension plans.
401(k)s – The $17,500 annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, remains the same for 2014 as it was for 2013.
The 401(k) Catch-Up - The $5,500 catch-up contribution limit for employees age 50 or older in these plans remains the same. Even if you don’t turn 50 until Dec. 31, 2014, you can make the additional $5,500 catch-up contribution for the year.
Inependent Retirement Accounts (IRAs) - The $5,500 limit on annual contributions to an Individual Retirement Account remains the same for 2014 as it was in 2013. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000.
Deductible IRA phase-outs - You can earn a little more in 2014 and get to deduct your contributions to a traditional pre-tax IRA. Note, even if you earn too much to get a deduction for contributing to an IRA, you can still contribute; it’s just non-deductible.
In 2014, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a employer retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and $69,000 in 2013. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000, up from $178,000 and $188,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Roth IRA phase-Outs - In 2014, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000.
If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions. To learn more about the backdoor Roth, click here.
The Saver’s Credit - The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low-and-moderate-income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500.
The SIMPLE IRA - The $12,000 limit on SIMPLE retirement accounts remains the same. The SIMPLE catch-up limit of $2,500 remains the same too.
Cost-of-living adjustments to retirement account contribution limits occur each year. We have noticed many people do not do their due diligence to keep informed on the matter and continue to contribute at the out-dated contribution levels than they should be. People who are not paying attention leave behind tax savings and the likelihood for a larger nest egg as their date of retirement nears. I should know, I used to be one of those who did not pay attention. Then I inquired into a 401k rollover where I worked one-on-one with an advisor from Regal Assets to determine the best, personalized way for me to proceed. This relationship has put the joy in and taken the mystery out of retirement planning.