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Changes to your 401(k), IRA and other qualified plans coming in 2018

Estimated reading time: 2 minutes, 12 seconds

Despite what you may have heard recently, don’t expect drastic changes to your 401(k), IRA or other retirement plan before year’s end. It’s true that the possibility of changes to your 401(k) plans shook the financial industry last week. Republicans floated the idea of generating revenue lost as a result of proposed tax cuts by capping 401(k) plan contributions to just $2,400. That amounts to over an 85% cut to what workers under age 50 can currently contribute tax-deferred to such plans.

Yesterday, however, President Trump tweeted there would be no changes to 401(k) plans. The White House has appeared receptive to the argument that such changes would harm American’s long-term financial health. With that said, you should expect a few cost-of-living adjustments to certain plans next year.

So, what are the changes to your 401(k), IRA and other retirement plans coming in 2018?

First, annual contribution limits for employees participating in 401(k) plans, 403(b) plans, most 457 plans and Thrift Savings Plans will increase by $500. For those under age 50, that results in a limit of $18,500. For those 50 or older, the catch-up contribution allowed is an additional $6,000, which would mean a total of $24,500. Annual contribution limits for IRAs will remain unchanged at $5,500 (or $6,500 for those age 50 or older).

The IRS also made changes to the phase-out ranges for IRA account holders. Below are the 2018 phase-out ranges for those considering deducting contributions to a Traditional IRA:

Changes to your 401(k)

  • single taxpayers covered by a workplace retirement plan (WRP): $63,000 to $73,000 (increasing by $1,000)
  • married couples filing jointly, where the IRA contributor is covered by a WRP: $101,000 to $121,000 (increasing by $2,000)
  • married couples filing jointly, where the IRA contributor is not covered by a WRP but married to someone who is: $189,000 and $199,000 (increasing by $3,000)
  • a married taxpayer covered by a workplace retirement plan but filing a separate return from his or her spouse: $0 to $10,000 (no change)

Finally, the IRS made changes to the income phase-out ranges for Roth IRA account holders. Below are the 2018 income phase-out ranges for those making contributions to a Roth IRA:

  • single taxpayers and heads of households: $120,000 to $135,000 (increasing by $2,000)
  • married couples filing jointly: $189,000 to $199,000 (increasing by $3,000)
  • a married taxpayer filing a separate return from his or her spouse: $0 to $10,000 (no change)

The Retirement Savings Contributions Credit (or Saver’s Credit) will also be impacted by these cost-of-living adjustments. For married couples filing jointly, the income limit increases by $1,000 to $63,000 in 2018. Heads of households will see the income limit increase $750 to $47,250, and single taxpayers or married individuals filing separately will see an increase of $500 to $31,500.

Kingdom Trust clients can visit our Forms page for instructions to deposit funds, which allow for easy designation for the tax year contribution.

Regular contributions help to maximize potential retirement benefits. The sooner you make contributions to a retirement account, the sooner you might benefit from any investment income or gains.

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