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New Guidelines for 2015 IRA and 401K Contribution Limits

New Guidelines for 2015 IRA and 401K Contribution Limits

  • November 3rd, 2014
  • jrhassociates
  • Comments Off on New Guidelines for 2015 IRA and 401K Contribution Limits

Recent Announcement: 2015 IRA and 401K Contribution Limits have been changed to meet increased cost-of-living index.

Individuals have always been able to reduce their taxable income by contributing to Individual Retirement Accounts (IRA) and 401k Pension Plans. However, the IRS recently announced that the dollar limitations imposed on many pension plan programs have been adjusted to reflect an increase in the cost of living index. The limitations that have been affected will change for the 2015 tax year, though some limitations will remain unchanged if the new cost-of-living index did not reach the statutory thresholds that trigger an adjustment for those particular plans.

In the 2015 tax year, the maximum elective deferral for 401k plans has increased from $17,500 to $18,000. For individuals who are over 50 years old, the catch-up contribution limit has increased from $5,500 to $6,000. The maximum contribution to IRAs has remained at $5,500, as has the 50+ IRA catch-up limit at $1,000.

2015 IRA Contribution Deduction Limitations

Despite the maximum contribution to IRAs being unaffected by the increased cost-of-living index, the range of a person’s Adjusted Gross Income (AGI) that affects whether or not 2015 IRA contributions can be written off as tax deductions has changed. Another factor that affects IRA contribution deduction limitations is whether or not the person is also covered by a retirement plan at work (such as a 401k).

If a single individual or a head of household is covered by a work-provided retirement plan, the phase-out range for IRA contribution deductions has been increased from $60,000-70,000 to $61,000-71,000. This means that if the individual’s AGI is below $61,000, his IRA contributions are completely deductible. If his AGI is between $61-71K, his contributions are partially deductible, and if his AGI exceeds $71,000, his contributions are nondeductible. These figures also apply to a person who’s married but is filing separately and lives apart from his spouse all year.

Following the same pattern, if a couple is married and files their taxes jointly, the phase-out range for IRA contribution deductions has been increased from $96,000-116,000 to $98,000-118,000. This means that if the couple’s AGI is below $98,000, their IRA contributions are fully deductible, if their AGI is between $98-118K, their contributions are partially deductible, and if their AGI exceeds $118,000, their contributions are nondeductible. These figures also apply to a person who is a qualifying widow/er.

For more on this topic, stay tuned for our next post!

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