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Recent IRS Changes Based on Cost of Living Adjustments

The IRS has recently announced the cost of living adjustments that will affect the dollar limitations for pension plans and retirement-related items for the 2018 tax year. Below are some changes that businesses and employees should be aware of.

Changes for 401(k), 403(b), 457, and Thrift Savings Plan Participants

Cost of living adjustments have affected the contribution limit for 401(k) plans, 403(b) plans, the majority of 457 plans, and the federal government’s Thrift Savings Plan. As a result of the adjustments, the contribution limit for participating employees has increased by $500, meaning the limit has moved from $18,000 to $18,500.

Changes for Defined Benefit Plans

There are a number of increases that have resulted from the cost of living adjustments for defined benefit plans. These increases, effective January 1, 2018, affect annual benefit limitations and more. To see the full list of changes please refer to IRS Notice 2017-64.

Changes for IRA, Roth IRA, and Saver’s Credit/Retirement Saving Contribution Credit Participants

The income ranges for traditional IRAs, Roth IRAs, and the Saver’s Credit/Retirement Savings Contributions Credit have all increased.

For Traditional IRAs, the income ranges are now as follows (taken directly from IRS.gov):

  • For single taxpayers covered by a workplace retirement plan, the phase out range is $63,000 to $73,000
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000).
  • 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 $189,000 and $199,000.
  • 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.

For Roth IRAs, the income ranges are now as follows (taken directly from IRS.gov):

  • For single taxpayers and heads of household, the phase out range is $120,000 to $135,000
  • For married couples filing jointly, the phase out range is $189,000 to $199,000
  • For married individuals filing a separate return who makes contributions to a Roth IRA is not subject to annual cost-of-living adjustment and remains $0 to $10,000.

For Saver’s Credit/Retirement Saving Contributions, the income limits are now as follows (taken directly from IRS.gov):

  • For low and moderate-income workers who are married and filing jointly, the income limit is now $63,000.
  • For low and moderate-income workers who are filing as heads of household, the income limit is now $47,250.
  • For low and moderate-income workers who are filing as singles or married individuals filing separately, the income limit is now $31,500.

Annual IRA contributions and the catch-up contribution limit for employees aged 50 and over have remained unchanged.