Caraker Law Firm Blog

Tax Planning Opportunity! - IRS Updates Retirement Contribution Caps

Posted by Chad Caraker on Tue, Nov 12, 2013 @ 02:33 PM

Retirememt Blog resized 600

 

It’s the time of year when the IRS announces cost-of-living adjustments affecting dollar limitations for retirement related items for tax years 2014.  Here are some highlights for the upcoming calendar year:

•    The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. 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.

•    The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.

•    The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.

•    Traditional IRA’s come with the benefit of being tax deductible for those taxpayers with AGI that are at or under a certain level.  There is a phase-out of this deduction between certain income levels.  Adjustments to the phase out effectively increased the income thresholds by $1,000, ($3,000 for those married to a taxpayer with a workplace retirement plan), as follows:  singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000 will see a phase-out, up from $59,000 and $69,000 in 2013. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000. For 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 the couple’s income is between $181,000 and $191,000, up from $178,000 and $188,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

•    The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

•    The limitation under Section 408 regarding SIMPLE retirement accounts remains unchanged at $12,000.

•    The limitation on deferrals under Section 457 concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $17,500.

•    The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500.

As we head into the end of the calendar year, now is the time to look closely at whether or not you have room to contribute additional dollars to tax deductible plans.  If you don’t yet have a plan, consider opening one and visit with your tax return preparer regarding the possible benefits and overall current tax liability reductions.  Some plans allow you to make a contribution after the first of the calendar year for the year prior.  Should you have any questions regarding these or any other retirement or estate planning matter, please don’t hesitate to contact our office.

Tags: Tax Deferral, Retirement Account Contributions, Estate Planning, Tax Planning, IRS