Although there weren’t any major tax law changes for 2015, there are some new guidelines with regards to tax-advantaged saving that are good to know. If you’re looking to make any major changes, it is now more important than ever to engage the proper financial planning teams to ensure that the changes are made in a tax-efficient manner.
Increased Retirement Contribution Limits:
Taxpayers can now contribute up to $18,000 to their 401(k), 403(b), and most 457 plans, which is up from $17,500 in 2014. If you’re over 50, the amount you can contribute in “catch-up” contributions also increased by $500 to $6,000. The IRA contribution limits remain unchanged at $5,500, with a $1,000 catch up contribution allowed for those that are over the age of 50. SEP IRA Contribution limits were also increased to $53,000, up $1,000 from 2014.
Higher IRA Income Limits:
The deduction for making contributions to a traditional IRA is phased out at slightly higher limits in 2015. If you’re covered by a workplace retirement plan, the deduction phases out when your modified AGI is between $61,000 and $71,000, up $1,000 from last year. If you’re married filing jointly, the income phase-out range is $98,000 to $118,000, up $2,000 from last year. If you aren’t covered by a workplace retirement plan and are married filing jointly, that income phase-out amount is now between $183,000 and $193,000, up $2,000 from last year.
Roth IRA Contribution Eligibility:
The Roth IRA Contribution eligibility increased $2,000 for this year, meaning that the phase-out range is now between $183,000 and $193,000 for those that are married filing jointly. If you’re single, that limit is now $116,000 to $131,000. If you earn too much to be eligible for a Roth IRA, you still have a few options worth considering. The first option is to contribute to a traditional IRA, and then making the conversion to a Roth, but this could have substantial tax consequences. Another option for after-tax retirement saving is to use a cash value life insurance policy, which will provide a death benefit, and allow cash to accumulate in the policy without downside risk. You can then access the cash during retirement tax-free if properly structured.
3.8% Medicare Surtax:
It is also important to note the 3.8% Medicare Surtax, which is assessed on income over $250,000 for married couples filing jointly, or $200,000 for single filers. If you’re considering a Roth Conversion, or taking a large distribution from your IRA accounts, it is important to properly plan for this potential additional tax.
This article was published in the February 20th issue of the India Tribune. © Copyright 2015 Wealth Planning Network, LLC.