ôô

6 Ways the New Tax Rules Affect Your Retirement

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.

By
Laura Adams, MBA,
Episode #570
6 Ways New Tax Rules Affect Your Retirement

5. You’re eligible for a Roth IRA with higher income.

Unlike a traditional IRA that comes with an upfront tax deduction, contributions to a Roth IRA are made on an after-tax basis. But you’re allowed to withdraw original contributions and earnings from a Roth that are completely tax-free in retirement. That can add up to massive tax savings.

One beauty of a Roth IRA is that eligible participants can max it out every year, even if you or a spouse participate in a retirement plan at work.

One beauty of a Roth IRA is that eligible participants can max it out every year, even if you or a spouse participate in a retirement plan at work. There are no limitations because, as I mentioned, contributions to a Roth are not tax-deductible. Roth benefits come on the back end when you take money out of the account.

Problem is, high earners don’t qualify for a Roth IRA under any circumstances; however, the income limit does increase slightly next year. Here are the new Roth IRA income limits by tax filing status for 2019.

  • For single taxpayers, the income threshold increases $2,000 from $135,000 to $137,000. When you earn between $122,000 and $137,000, you’re allowed a reduced contribution limit. And when you earn less than $122,000, you can max out a Roth IRA.
  • For married taxpayers filing jointly, the income threshold increases $4,000 from $199,000 to $203,000. When you earn between $193,000 and $203,000, you’re allowed a reduced contribution limit. And when you earn less than $193,000, you can max out a Roth IRA.
  • For married taxpayers filing separately, the income threshold remains $10,000. When you earn up to $10,000, you’re allowed a reduced contribution, but if you earn more than $10,000, you’re locked out of a Roth IRA.

6. You can contribute more to a retirement plan if you’re self-employed.

If you’re self-employed either full- or part-time, there’s good news for you, too. The annual contribution limits are going up next year for a variety of small business retirement accounts.

For those with a solo 401(k), also known as a one-participant 401(k) plan, the contribution limit increases $1,000 from $55,000 to $56,000 in 2019. And if you’re over age 50, you can also make $6,000 in additional catch-up contributions, for a total contribution limit of $25,000.

As the owner of your business, you can also make solo 401(k) contributions up to 25% of your compensation, for a total contribution up to $56,000 per year, or $62,000 if you’re over age 50.

A popular retirement plan for those who are self-employed, either with or without employees, is a SEP-IRA. The contribution limit can’t exceed the lesser of 25% of compensation or $56,000 for 2019. But catch-up contributions are not allowed with a SEP plan.

This isn’t a complete list of tax changes for retirement plans, but this includes the most popular types of accounts. Be sure to visit IRS.gov for more details or consult with a qualified accountant if you have questions about your financial situation.

Get More Money Girl!

To connect on social media, you’ll find Money Girl on FacebookTwitter, and Google+. Also, if you’re not already subscribed to the Money Girl podcast on Apple Podcasts or the Stitcher app, both are free and make sure that you’ll get each new weekly episode as soon as it’s published on the web. The show is also on the Spotify mobile appClick here to sign up for the free Money Girl Newsletter!

Retirement Concept courtesy of Shutterstock

Pages

The Quick and Dirty Tips Privacy Notice has been updated to explain how we use cookies, which you accept by continuing to use this website. To withdraw your consent, see Your Choices.