If you have an individual retirement account (IRA), your annual contributions have a limit. In 2019, those limits are rising, which is great news for those who like to save the maximum. Below, you’ll find everything you need to know about the new maximums and your phase-out range (if you are covered by a retirement plan at work).
Here’s what you need to know:
If you participate in a 401(k) or 403(b), certain types of 457 plans, or the federal government’s Thrift Savings Plan, your contribution limit has increased from $18,500 to $19,000.
The limit on annual contributions to an IRA has increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
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As a taxpayer, you can deduct contributions you make to a traditional IRA if you meet certain conditions. If during the year you or your spouse was covered by a retirement plan at work, your deduction may be reduced, or phased out, until it is eliminated, depending on your filing status and income. (If neither you nor your spouse are covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:
- Traditional IRAs
- If you’re single and covered by a workplace retirement plan, your phase-out range is $64,000 to $74,000 (up from $63,000 to $73,000).
- If you’re married and filing jointly, and one of you is both making the IRA contribution and covered by a workplace retirement plan, your phase-out range is $103,000 to $123,000 (up from $101,000 to $121,000).
- If you’re 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 your combined income is between $193,000 and $203,000 (up from $189,000 and $199,000).
- If you’re married and filing separately, and are covered by a workplace retirement plan, your phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
- Roth IRAs
- If you’re making contributions to a Roth IRA and are a single head of household, your income phase-out range is $122,000 to $137,000 (up from $120,000 to $135,000).
- If you’re married and filing jointly, your income phase-out range is $193,000 to $203,000 (up from $189,000 to $199,000).
- If you’re married and filing a separate return, and making contributions to a Roth IRA, you are not subject to an annual cost-of-living adjustment so your phase out range remains $0 to $10,000.”
Now that you know what the limits are, you may be wondering what happens if you exceed them. Your excess contributions will be taxed at 6% per year, for as long as those funds remain in your account. However, you can avoid the tax by withdrawing the excess amount, as well as any earnings associated with those amounts, from your IRA before your income tax is due.
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