Knowledge is power, and when it comes to your retirement game plan, it’s critically important to stay abreast of new saving opportunities. The IRS recently announced a few changes that will affect how you save for retirement, including contribution limit increases, income limit increases, and adjustments to the saver’s credit tax break. Taking advantage of these 2018 adjustments could greatly benefit your retirement portfolio and overall quality of life.
1. You can contribute $500 more to your 401(k)
For the first time since 2015, the IRS announced 401(k) contributions will increase, moving from $18,000 to $18,500 in 2018. This increase in contribution limits also applies to 403(b) and 457 plans. Although the contribution increase might feel like a mere drop in the bucket, you’d be surprised at how much your portfolio could increase if you take advantage.
Next: How saving an extra $500 today could translate into greater retirement security for you
2. A $500 increase can translate to big money
When you’re considering whether to take advantage of the increase in your 401(k) contribution, realizing the value of that additional $500 each year is imperative. Now, if you are thinking that contributing $500 more annually wouldn’t produce much overall benefit, consider connecting with your financial adviser or do a little calculation on your own to see what a difference it could really make. An additional $500 contribution now could mean thousands of dollars more in your nest egg upon retirement.
Next: An important change for people who contribute to a Roth IRA
3. Roth IRA income limits will increase slightly
To contribute to a Roth IRA (which allows you to save tax-free money for retirement), certain income limits cannot be exceeded. Starting in 2018, an individual or the head of household may contribute the maximum of $5,500 as long as their modified adjusted gross income does not exceed $120,000. That’s a $2,000 increase on the income limit. As for those filing jointly, the maximum can be contributed to the Roth IRA as long as the modified adjusted gross income does not exceed $189,000. That’s a $3,000 income limit increase.
But what about the phase-out deduction for traditional IRAs?
Next: Traditional IRA savers need to pay attention, too.
4. Income limits for traditional IRA deductions have also increased
As for the traditional IRA contributions, the deduction phase-out limits have increased, as well. Singles who make contributions to a traditional IRA will be able to deduct all or part of those contributions up to a modified adjusted gross income limit of $63,000 if they are covered by a retirement plan at work, up from an income limit of $62,000 in 2017. And for those filing jointly who have a workplace retirement plan, the total phase-out will occur once household modified adjusted gross income exceeds $121,000. There’s no income limit if your employer doesn’t offer a retirement plan.
Next: What’s even better? Another opportunity to save more for retirement.
5. HSA contributions are increasing
Health savings accounts are brilliant. And for anyone who has an HSA, the tax breaks that come along with the account are uncanny in this day and age. Besides the obvious benefit of stashing away money for future medical expenses — including those in retirement — the HSA contribution amount will increase in 2018. For individuals, the new maximum will be $3,450, up $50 from 2017. For families, the new maximum will be $6,900, a $150 increase from 2017.
Next: Lower-income savers get a boost, too.
6. Saver’s tax credit income limits have increased
The saver’s tax credit lets you reduce your tax bill by saving for retirement. But strangely enough, only 12% of qualifying employees are taking advantage of the credit, even though low- and moderate-income savers might qualify for a tax credit of up to $1,000 for their first $2,000 in retirement savings.
In 2018, the income limits on the saver’s tax credit will increase — all the more reason workers should be taking advantage. For joint filers, the income limit will inch up to $63,000, a $1,000 increase from 2017. For the head of household filers, the limit will be $47,250, a $750 increase. And for single or married filers filing separately, the limit increases to $31,500, a $500 raise.
Next: One thing that isn’t changing about retirement saving in 2018
7. What will remain the same in 2018?
When it comes to your IRA contributions, nothing will change in 2018. If you’re younger than 50 years old, the maximum contribution from wages earned still rests at $5,500. For those above the age of 50, your additional catch-up contribution stays at $1,000. As for 401(k) catch-up contributions? Those also remain the same at $6,000.
Next: Playing your retirement cards right
8. Making sure you’re playing with a full deck
No matter from which angle you approach your retirement savings strategy, the most important rule of thumb is sorting out a plan early on. Although you might not know which cards you’ll be dealt, consulting with a financial adviser or conducting your own research will allow you to know how to play your cards. As the deck unfolds, you’ll be able to make changes, tweaks, and smart adjustments.