There’s good news from the Internal Revenue Service (surprise!) for people who stuff as much money as possible into their 401(k) retirement accounts; starting this year the contribution limit has been augmented to $18,000, an increase of $500.
Even more good news for American workers who are 50 years of age and older is that the “catch-up” amount that they can contribute to their 401(k) plans will also increase $500 in 2015, meaning that they can put an extra $6000 into their 401(k) or $24,000 in total.
That being said, the truth is that most American workers unfortunately can’t afford to meet those maximum amounts. For example, of the more than 3 million participants in Vanguard’s 401(k) plan, a mere 12% maxed out their contributions in 2013 according to their annual report “How America Saves”. (Those figures don’t include monies from any employer matching programs.)
For consumers who use their 401(k) plan and earn over $100,000 a year, Vanguard found that 36% were contributing the maximum amount of money. That number fell precipitously however for consumers earning between $50,000 and $74,999, where only 2% were maxing out their contributions.
The IRS increase is connected to, and reflects, the increase in the Consumer Price index. This is the index that measures inflation but, interestingly enough, the IRS did not increase limits for contributions to traditional IRAs and Roth IRAs, which will stay the same and a limit of $5500.
Another bit of good news is that the income levels determining which consumers will get a full deduction on their IRA contributions are increasing in 2015 as well.
For example, a single taxpayer with a 401(k) plan will see their income level raise from between $60,000 and $70,000 up to $61,000 and $71,000. The deduction will phase out at incomes of $98,000 up to $118,000 (up from $96,000 to $116,000) for joint filers who have one spouse making IRA contributions as well as participating in a workplace retirement program.
It was also announced that, as far as Roth IRAs are concerned, more people will be able to contribute to them and take advantage of their after-tax contributions.
One last bit of good news is that, in order to qualify for the “savers credit” of up to $2000, the IRS has made it slightly easier for consumers. In 2015 this credit, which was put in place to help low to middle income retirement savers, will be granted to single filers with incomes of less than $30,500 as well as married couples with incomes of less than $61,000.
So, as you can see, not all news coming from the IRS is bad news, especially if you do your best to put as much money as possible into a 401(k), IRA or Roth IRA retirement plan.
