The IRS recently announced that next year you can save more in different types of tax-advantaged retirement plans. Find out six ways the new tax rules affect your retirement.
3. You can contribute more to an individual retirement account.
What if you don’t have a cushy retirement plan at work? No problem. You can open up your own traditional or Roth IRA, which stands for an individual retirement account or individual retirement arrangement.
The IRS has been slow to raise the IRA contribution limits. The most you could save has been $5,500 since 2013.
But starting next year you can contribute $6,000 to either a traditional IRA, a Roth IRA, or a combination of the two accounts. For example, you could save $2,000 in a traditional IRA and $4,000 in a Roth IRA in the same year.
IRAs also come with a catch-up contribution limit, which remains $1,000. So, if you’ve reached age 50, you can contribute a total of $7,000 to an IRA in 2019 no matter how much you earn.
See also: The Rules for Using a Spousal IRA
4. You’re eligible for more tax deductions with higher income.
Many people don’t realize that you can max out both a workplace retirement plan and an IRA in the same year. However, when you (or a spouse) contribute to both types, the tax deduction for a traditional IRA may be reduced or eliminated, depending on your income.
Here are the upper income thresholds and phaseout ranges by tax filing status when you contribute to both a workplace plan and a traditional IRA:
- For single taxpayers, the income threshold for 2019 has increased $1,000 from $73,000 to $74,000. When you earn between $64,000 and $74,000, you’re allowed a reduced tax deduction. And when you earn less than $64,000, you get the full tax deduction.
- For married taxpayers filing jointly, the income threshold for 2019 has increased $2,000 from $121,000 to $123,000. When you earn between $103,000 and $123,000, you’re allowed a reduced tax deduction. And when you earn less than $103,000, you get the full tax deduction.
- For married taxpayers filing separately, the income threshold for 2019 remains $10,000. When you earn up to $10,000, you’re allowed a reduced tax deduction, but no deduction if you earn more than $10,000.
- For married taxpayers filing jointly when the contributor doesn’t have a workplace plan, but the spouse does, there are also restrictions. The income threshold for 2019 has increased $4,000 from $199,000 to $203,000. When you earn between $193,000 and $203,000, you’re allowed a reduced tax deduction. And when you earn less than $193,000, you get the full tax deduction.
Remember that being a high-earner means you can still max out a traditional IRA, in addition to a workplace plan, but your traditional IRA contributions just may not be tax-deductible.