With more than $26 trillion saved for retirement, many Americans are making good use of retirement accounts like 401(k)s and IRAs.
If you are saving for retirement, 2018 will be a good year for you, according to a recent article in Kiplinger’s “2018 Retirement Contribution Limits for 401(k)s and IRAs.”
401(k)s. A 401(k) allows employees to save and invest some of their paycheck pre-tax. Taxes aren’t owed until the money is withdrawn from the account. The annual contribution limit for 401(k)s in 2018 will go up to $18,500 from $18,000. This jump also applies to 403(b) and 457 plans, as well as the federal government's Thrift Savings Plan. If you’re 50 or older, remember that there’s also a catch-up contribution for 401(k)s that will stay at $6,000. That brings the maximum total contribution limit to $24,500 in 2018.
IRAs. An individual retirement account is an investing vehicle used by people to earn money for retirement savings. The limit for IRA contributions will remain at $5,500 in 2018, and the catch-up contribution for people 50 or older will remain at $1,000. If you turn 50 in 2018, you can make the full $6,500 contribution any time after January 1. There is no need to wait for your birthday.
Roth IRAs. A Roth IRA is a special retirement account to which you contribute post-tax income (you can’t deduct your contributions on your income taxes). Because the tax has been paid, future withdrawals that follow Roth IRA regulations are tax free. There’s no up-front tax deduction for Roth IRA contributions, as there is with a traditional IRA. The income limits to qualify to make Roth IRA contributions will increase a bit in 2018.
If you are filing taxes as a single or a head of household, the maximum amount can be contributed to a Roth IRA, if the modified adjusted gross income (MAGI) is less than $120,000. The contribution amount will phase out completely once MAGI is greater than $135,000 (an increase from $118,000 to $133,000 in 2017).
There is also good news for married couples who file their taxes jointly. They can contribute the maximum amount if MAGI is less than $189,000, with the amount phasing out above $199,000. That’s a healthy increase from $186,000 to $196,000 in 2017.
Reference: Kiplinger (November 16, 2017) “2018 Retirement Contribution Limits for 401(k)s and IRAs”