The Treasury Department has announced inflation-adjusted figures for retirement account savings for 2017, and there are tweaks that help savers. Much stays the same, but there are increases in income phase-outs for IRA contributors, to the adjusted gross income limits for snagging the saver’s credit, and to the overall defined contribution plan limit — up to $54,000 — a boost for self-employed and small business owners and workers who have the option of stuffing their retirement nest egg with aftertax dollars.
Congress bestows these tax breaks to encourage retirement savings. And the cost-of-living index changes give a little extra room for more savings. If you want to eke out every last opportunity for tax-advantaged savings, here are the details (spelled out in more details in Notice 2016-62). Forbes also has details on 2017 estate and gift tax limits and 2017 income tax rates, standard deductions and more.
401(k)s. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is $18,000 for 2017, the same as in 2016. Note, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.
The 401(k) Catch-Up. The catch-up contribution limit for employees age 50 or older in these plans also stays the same at $6,000 for 2017. Even if you don’t turn 50 until Dec. 31, 2017, you can make the additional $6,000 catch-up contribution for the year. If your plan lets you, you might want to frontload your catch-up contributions.
SEP IRAs and Solo 401(k)s. For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) is up from $53,000 in 2016 to $54,000 in 2017. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also goes up from $265,000 in 2016 to $270,000 in 2017. For more on savings strategies if you have self-employment income, see How Entrepreneurs Can Get Big Tax Breaks For Retirement Savings.
After-tax 401(k) contributions. If your employer allows after-tax contributions to your 401(k), you also get the advantage of the $54,000 limit for 2017. It’s an overall cap, including your $18,000 (pre-tax or Roth) salary deferrals plus any employer contributions (but not catch-up contributions). For how to rollover after-tax 401(k) money into a Roth IRA, see Roth Road To Riches.
The SIMPLE. The limit on SIMPLE retirement accounts for 2017 is $12,500, the same as in 2016. The SIMPLE catch-up limit is still $3,000. Here’s how a SIMPLE works in practice, and here’s how the 2015 year-end tax deal authorized rollovers into SIMPLEs.
Defined Benefit Plans. The limitation on the annual benefit of a defined benefit plan goes up from $210,000 in 2016 to $215,000 in 2017. These are powerful pension plans (an individual version of the kind that used to be more common in the corporate world before 401(k)s took over) for high-earning self-employed folks.
Individual Retirement Accounts. The $5,500 limit on annual contributions to an Individual Retirement Account remains the same for 2017, the fifth year in a row. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000. (Remember that 2016 IRA contributions can be made until April 15th, 2017.)
Deductible IRA phase-outs. You can earn a little more in 2017 and get to deduct your contributions to a traditional pre-tax IRA. Note, even if you earn too much to get a deduction for contributing to an IRA, you can still contribute; it’s just non-deductible.
In 2017, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $62,000 and $72,000, up from $61,000 and $71,000 in 2016. 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 $99,000 to $119,000, up from $98,000 to $118,000.
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 $186,000 and $196,000 in 2017, up from $184,000 and $194,000 in 2016. 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.
Roth IRA Phase-Outs. The same adjustment helps Roth IRA savers. In 2017, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $186,000 to $196,000 for married couples filing jointly, up from $184,000 to $194,000 in 2016. For singles and heads of household, the income phase-out range is $118,000 to $133,000, up from $117,000 to $132,000 in 2015.
If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions. To learn more about the backdoor Roth, see How A High-Earner Couple Got A Roth IRA And You Can Too.
Saver’s Credit. The income limit for the saver’s credit for low and moderate income workers is $62,000 for married couples filing jointly, up from $61,500; $46,500 for heads of household, up from $46,125; and $31,000 for singles and married filing separately, up from $30,750.
This article was written by Ashlea Ebeling from Forbes and was legally licensed through the NewsCred publisher network.
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