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2016 Retirement Plan Contributions

As Seen In the Fort Bend Independent

As we are well into the latter half of the year, here is some helpful information regarding retirement plan contributions that you should be aware of.

401(k), 403(b) & 457 Plan Contributions

The limit on annual deferrals is $18,000. However, the additional catch-up deferral limit for individuals age 50 and older is $6,000. Thus, if your age 50 or older in 2016, you can make 401(k), 403(b) and 457 plan deferrals of up to $24,000. Please note deferrals can only take place during the calendar year. If your goal is to max out your annual deferrals, it’s a good idea to review your paystub to make sure you’re on track to max out your deferrals before year-end.

Traditional & Roth IRA Contributions

The limit on annual contributions to an IRA is $5,500. The additional catch-up contribution limit for individuals aged 50 and older is $1,000. Thus, if your age 50 or older in 2016, you can make an IRA contribution of up to $6,500. If you and your spouse are not covered by a workplace retirement plan (i.e. not “active participants”) in 2016, there is not a phase-out for deductibility. Please note you can only make an IRA contribution up to the amount of earned income you had during the calendar year.

The deduction for taxpayers making contributions to a traditional IRA is phased out for single people and heads of household who are covered by a workplace retirement plan and have a modified adjusted gross incomes (AGI) of between $61,000 and $71,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $184,000 and $194,000.

In regards to Roth IRAs, if you are currently not in a high tax bracket and have more than five years until retirement, you should consider making a Roth IRA contribution. You won’t get a tax deduction now for making a Roth contribution; however, Roth funds grow tax-free and are distributed tax-free upon withdrawal if the Roth IRA has been open for more than five years and/or you are beyond age 59.5.

The 2016 AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly. For single people and heads of household, the income phase-out range is $117,000 to $132,000, respectively.

Simple IRA Contributions

The limit on deferrals to a Simple IRA is $12,500. However, if you are age 50 or older in 2016, you can make a Simple IRA employee deferral of up to $15,500.

 SEP IRA Contributions

A Simplified Employee Pension (SEP) IRA is the only retirement plan that can be opened and funded after the calendar year. You have until the tax-filing deadline (April 15 or October 15 if you file an extension) to open and fund a SEP IRA. Therefore, you can still make a 2015 SEP IRA contribution if you filed for an extension. Self-employed individuals may contribute up to 25 percent of their income to a SEP IRA up to the $53,000 limit for 2016. Only compensation up to $265,000 is includible when calculating SEP IRA contributions. This is a great option for self-employed individuals looking to save for retirement as well as reduce their tax bills.

 

WJ Interests, LLC, has provided fee-only financial advice to individuals, families and businesses since 1996. For more information, please contact us at wj@wjwealth.com or 281-634-9400.

 

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