Tax-deferred retirement accounts allow investments to compound free of taxes, which can make them an exceptional investment vehicle. One of the downsides is the fact that there are annual contribution limits on these accounts. The IRS is in charge of determining the contribution limits to each of these types of accounts. In determining these limits, they take into account several factors including your income. They announce the limits for the upcoming year annually, which may or may not change. Below are the 2018 contribution limits for some of the various retirement accounts.
401(k), 403(b), 457, and Thrift Savings Plan
In 2017, the employee contribution limit on these plans was $18,000. For 2018, this limit will increase by $500, making the new employee contribution limit $18,500. For those aged 50 and older by the end of 2018, you are permitted a catch-up contribution of an additional $6,000, totaling your 2018 contribution limit to $24,500. It is important to remember this limit applies only to elective deferrals. The total contribution limit (including employer matching contributions) for these plans was $54,000 ($60,000 with a catch-up contribution) in 2017. For 2018, the total contribution limit will increase by $1,000, totaling $55,000 ($61,000 with a catch-up contribution). These contributions are tax deductible and lower your taxable income for the year.
Traditional and Roth IRA
The 2017 contribution limit for Traditional and Roth IRA’s was $5,500. This limit will remain the same in 2018. For those aged 50 and older by the end of 2018, you are permitted a $1,000 catch-up contribution, totaling your 2018 contribution to $6,500.
SEP-IRA contributions are made only by the employer. The 2017 contribution limit for a SEP-IRA was 25% of each employee’s salary up to a maximum of $54,000. For 2018, the contribution limit is again 25% of each employee’s salary with a new maximum contribution amount of $55,000, up $1,000 from 2017.
The SIMPLE IRA employee contribution limit for 2017 was $12,500. For 2018, this limit remains unchanged. For those aged 50 or older by the end of 2018, you are permitted a $3,000 catch-up contribution, totaling your 2018 contribution to $15,500.
Below is a table that more concisely illustrates the changes, if any, between the 2017 and 2018 retirement account contribution limits. As always, if you have any questions about your specific circumstance, please do not hesitate to contact us.