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Tuesday November 13, 2018

Washington News

Washington Hotline

IRA and 401(k) Contributions in 2019

On November 1, 2018, the IRS announced the 401(k) and IRA contribution limits for 2019. The IRA limit increases from $5,500 in 2018 to $6,000 in 2019. Individuals over age 50 may make a catch-up contribution of $1,000, for a total transfer of $7,000 in 2019.

Traditional IRA contributions from earned income are tax deductible. The traditional IRA has two main tax benefits - contributions are tax deductible and grow tax free. If you are covered by a qualified retirement plan at your work place, the IRA deduction may be reduced or phased out.
  1. Single Taxpayers with Workplace Plans - The IRA contributions for single taxpayers are phased out for taxpayers with income of $64,000 to $74,000.
  2. Married Couple with Workplace Plans - A couple with joint income of $103,000 - $123,000 will be subject to the IRA phaseout.
  3. Married and No Workplace Plan - If one spouse does not have a workplace plan and the other spouse is covered in his or her workplace, the phaseout on a joint return is $193,000 to $203,000.
A Roth IRA is funded with after-tax income. It grows tax free and most distributions are tax free. Roth IRA owners may withdraw tax-free contributions at any time. After the taxpayer's Roth IRA has been in existence for five years and the owner is over age 59½, amounts may be withdrawn tax free.

The Roth IRA phaseout limits also increase in 2019.
  1. Single Individuals - The Roth phaseout for single taxpayers next year will be $122,000 to $137,000.
  2. Married Couples - For married couples, the Roth IRA phaseout is $193,000 to $203,000.
Many businesses maintain 401(k) plans and most nonprofits provide 403(b) plans. The 2019 limit for an employee contribution to a 401(k) or 403(b) plan is $19,000. Employees over age 50 may make a catch-up addition of $6,000, for a total transfer of $25,000.

If your employer offers both a traditional 401(k) and a Roth 401(k) plan, you may allocate your employee contribution to one or both funds. The traditional 401(k) amounts are deductible, but the Roth 401(k) contributions are after-tax.

Many employers match their employees' 401(k) contributions. This is a good way to encourage employee participation in a 401(k) plan. The employer match is used to fund the employees' traditional 401(k) accounts. Employees may still make contributions to Roth 401(k) accounts up to the $19,000 or $25,000 limit.


Published November 2, 2018
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