The Internal Revenue Service (IRS) announced its cost-of-living adjustments (COLAs) affecting dollar limitations for pension plans and other retirement-related items for tax year 2018.
Among the changes for 2018, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has been raised to $18,500 from $18,000. All of the income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the saver’s credit also increased for 2018.
If either an employee or their spouse was covered during the year by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.
The new phase-out ranges for 2018 include:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000. For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range has been raised to $101,000 to $121,000 from $99,000 to $119,000.
- 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, which is up from $186,000 and $196,000.
- 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 COLA and remains $0 to $10,000. However, the income phase-out range for taxpayers making contributions to a Roth IRA has been increased to $120,000 to $135,000 for singles and heads of household, from $118,000 to $133,000.
- For married couples filing jointly, the income phase-out range has risen to $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual COLA, and remains $0 to $10,000.
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000; $47,250 for heads of household, up from $46,500; and $31,500 for singles and married individuals filing separately, up from $31,000.
The IRS left unchanged the limit on annual contributions to an IRA at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual COLA and remains $1,000. Additionally, the catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.