Here's some welcome news for people putting money away for retirement: The IRS has raised the 2019 contribution limits for various types of retirement savings accounts and for health savings accounts. If you participate in a 401(k) or similar plan, you should keep the new limits in mind as you think about your cash flow and financial planning for next year.
The annual limit on contributions in 2019 for tax-advantaged plans such as 401(k), 403(b), 457 and so on is $19,000, up from the current limit of $18,500. And if you're age 50 or older at any time during the year (even if your 50th birthday falls on Dec. 31), you can also make additional catch-up contributions of an additional $6,000, for a total annual contribution of $25,000.
Self-employed 401(k) plans
People who are self-employed can also set up and fund their own 401(k) profit-sharing plan, which allows for the same contribution limits as above. The self-employed can make two kinds of contributions to these plans: the employee's contribution and the employer's profit-sharing contribution. This type of plan is easy to set up at any major brokerage firm, and the contributions reduce your adjusted gross income, which results in considerable tax savings.
For an individual who declares about $80,000 in net profit from self-employment, the total pretax contribution is about $33,900 in 2019. If you're 50 or older, you can contribute about $39,900. If you're 50 or older and make a profit of $196,000 or more in 2019, the maximum pretax contribution is $62,000, which is also the maximum annual contribution to this type of plan.
The new limit for contributions to IRAs for those under age 50 with earned income from wages is increased to $6,000 from $5,500. This limit applies to any type of IRA in 2019. Those 50 and older in 2019 can make an additional catch-up contribution of $1,000, for a total annual contribution of $7,000.
The IRS also announced that it increased all income limits used in determining eligibility to make deductible contributions to traditional IRAs, Roth IRAs and even for claiming the Savers Credit.
Single taxpayers who are eligible to participate in a workplace retirement plan are also eligible to make a tax-deductible contribution to an IRA if their adjusted gross income is below $64,000 ($103,000 for marrieds) in 2019. This is up from $63,000 (singles) and $101,000 (marrieds) in 2018. This deduction is phased out when AGI is between $64,000 and $74,000 (singles) and $103,000 to $123,000 (marrieds).
The income range for making contributions to a Roth IRA in 2019 is $122,000 to $137,00 (singles and heads of households) and $193,000 to $203,000 (marrieds).
The 2019 income limit for the Savers Credit (also called the retirement savings contributions tax credit), which is for low- to middle-income workers who contribute to a retirement plan or IRA, is $64,000 for married workers (up from $63,000), $48,000 for heads of households and $32,000 for single filers (up from $31,500).
Health savings accounts
The 2019 annual HSA contribution limit for individuals with single medical coverage is $3,500, an increase of $50 from 2018. The limit is $7,000 for those covered under qualifying family plans (up from $6,900 in 2018). But if you're 55 or older in 2019, you can contribute an additional $1,000 annually, or $4,500 total to an HSA for singles and $8,000 for families.
If you're enrolled in a high-deductible health plan, you really should take advantage of this special savings opportunity. Make it a point to set aside pretax money into an HSA because you don't pay taxes on the earnings, which can also be withdrawn tax-free in retirement when used to reimburse yourself for qualified medical expenses.