Starting in 2015, contribution limits for the tax-deferred
retirement accounts will increase by $500 to $18,000, the Internal Revenue
Service announced Thursday. Meanwhile, the "catch-up" amount that
workers age 50 and over can contribute to their plans will rise to $6,000 from
$5,500, for a total of $24,000 next year.
Of course, not many workers can afford to save those maximum
amounts. In 2013, 12% of Vanguard's more than 3 million 401(k)
participants contributed the max allowed (not including any match from their
employer), according to the company's annual How America Saves report.
Vanguard's report found that 36% of 401(k) savers earning
$100,000 or more contributed the max, while only 2% of those earning between
$50,000 and $74,999 maxed out their contributions. Stephen Blakely from the
Employee Benefits Research Institute noted that some people may not be able to
contribute the maximum savings because their employer limits how much they can
put in a 401(k).
The IRS said it was increasing the 401(k) contribution
limits to reflect increases in the Consumer Price Index, which measures
inflation. Yet the agency said the price increases were not enough to merit
raising the contribution limits for traditional and Roth IRAs, which will
remain unchanged at $5,500. The IRA catch-up contribution of $1,000 will also
stay the same. However, the IRS is raising the income levels that determine who
can get a full deduction on their IRA contributions.
In 2015, the deduction will phase out for single taxpayers
who also have a workplace retirement plan, like a 401(k), with an income of
between $61,000 and $71,000, up from $60,000 to $70,000. For joint filers where
the spouse making the IRA contribution also participates in a workplace
retirement plan, the deduction will phase out at incomes of $98,000 to
$118,000, up from $96,000 to $116,000.
More people will also be able to contribute to a Roth IRA,
which allows after-tax contributions.
For 2015, single taxpayers earning less than $131,000 can
put money into a Roth account, up from $129,000 this year. And those earning
less than $116,000 (up from $114,000 this year) can make a full $5,500
contribution. Meanwhile, married couples filing jointly can contribute to a
Roth if they earn less than $193,000, up from $191,000. And they can make the
full contribution if they earn less than $183,000, up from $181,000.
It will also be slightly easier for taxpayers to qualify for
the so-called savers credit of up to $2,000, which is aimed to help low- and
middle-income retirement savers. In 2015, the credit will be granted to married
couples with income of less than $61,000 and single filers with incomes less
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