Is your retirement account lagging behind your retirement needs? Before time slips away and your retirement dreams of lazing in a beach house turn into extra years of work, try to alter your spending and saving habits to put as much as possible into your IRA or 401(k) account — because time is not on your side for several reasons.
By putting less in your retirement accounts, you miss out on years of tax-deferred growth — and if you wait too late to make larger retirement contributions, you may run up against the IRS limits for annual contributions.
The IRS recently announced the retirement contribution limits for 2017. Limits are inflation-adjusted, but because of the negligible inflation in 2016, the contribution limits will not change at all in 2017, although a few of the phase-out limits have moved slightly upward. We have listed them below.
- 401(k)s – Annual contributions for 401(k) plans are $18,000, with catch-up contribution limits at $6,000 for those 50 years old and above. Catch-up contributions are just what the name implies — an extra allowance for those nearing retirement to contribute more funds toward retirement plans. Even if you turn 50 on December 31, 2017, you can still add $18,000 plus the $6,000 catch-up contribution for a $24,000 total. These limits also apply to 403(b) plans, the majority of 457 plans, and Thrift Savings Plans.
- IRAs – IRA annual contribution limits are once again at $5,500 with a $1,000 catch-up contribution for those at least 50 years old. Traditional IRA contributions are deductible up to certain income levels; beyond the threshold, they phase out with higher incomes and eventually become non-deductible. Even though IRA contributions may not be deductible at higher levels, you can still contribute regardless of your adjusted gross income (AGI).
The IRA phase-out AGI range for single filers and heads of household is $62,000 to $72,000. The phase-out for married couples filing jointly is $99,000 to $119,000 in cases where the spouse making the contribution is covered by a workplace retirement plan, but when the contribution is made by the spouse who is not covered by a workplace retirement plan, the phase-out range is $186,000 to $196,000, an increase of $2,000 on each end of the range from 2016.
- Roth IRAs – The basic contribution limits of $5,500 and $1,000 catch-up are the same for Roth IRAs as they are for traditional IRAs. Two changes were made in the Roth IRA phase-outs. The phase-out range for married filing jointly is an AGI of $186,000 to $196,000, and the phase-out for single filers and heads of household is $118,000 to $133,000.
- Saver's Credit – The Saver's Credit also goes by the name of Retirement Savings Contribution Credit and is applicable to lower income workers. AGI limits for the Saver's Credit is $62,000 for married filing jointly, $46,500 for heads of household, $31,000 for married filing separately and single filers.
- SEP IRAs/Solo 401(k)s – Small business owners and self-employed individuals can contribute up to $54,000 in 2016 to an SEP IRA or a Solo 401(k), a $1,000 increase from $53,00 in 2016.
- SIMPLE Accounts – SIMPLE retirement accounts will have a $12,500 limit for 2017 along with a $3,000 catch-up contribution for those ages 50 or above.
Regardless of the type of retirement account you have, be sure to put as much as you can afford into it. Take advantage of any catch-up contributions if you have reached 50 years old or will do so in 2017. Your future self will thank you for having the foresight not to shortchange your retirement plans.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.
Photo ©iStock.com/Jason York