The IRS (Internal Revenue Service) announced the cost of living adjustments that would be affecting dollar-limitations for both 401 (K) and Roth IRA retirement plans and other retirement related items for 2016. Every fall the Internal Revenue Service (IRS) presents new contribution & income limits for the coming year which is anxiously anticipated by everyone, and like always, the reaction from the public this year was the same.
However, to lower the curiosity let us tell you that in general, the changes proposed for the year 2016 are minimal. Though the changes are not big but nonetheless it is very important to learn and find out what these changes are. And that’s exactly what we’ll discuss in this post.
Here are the highlights of the limitations that have changed for the year 2016:
1. If you’re an IRA contributor and you’re not covered by your workplace retirement plan, however, if you’re married and your spouse is covered than in such as scenario your deduction will be phased out if the income of you and your spouse as a couple is between US$ 184,000 and US$194,000 up from last year’s US$183,000 and US$193,000. Simply put, income limits bumped up by $1000 for 2016.
2. For single filers who want to contribute to Roth IRA, income threshold begins at $117,000 which is up by US$116,000 and ends at US$133,000 which is up by US$132,000. In this range your contribution is limited.
3. The AGI range for saver’s credit (retirement savings contribution credit) for both low and moderate income workers is up from US$61,000 to $61,500 for couples that are filing jointly.
However, it is US$30,750 if married individuals decide to file separately. The figure is up from US$30,500. The change is not significant.
Highlights of the limitations that have not changed for this year:
1. The contribution limit for employees participating in 401(k) and 403(b) has not changed. It continues to remain at US$18,000.
2. Even the catch up contribution limit has not changed. The catch up limit for employees who are above 50 or over and who participate in 401(k) remain unchanged at US$6,000.
3. The annual contribution limit to IRA (Individual Retirement Arrangement) also remains the same at US$5,500. Simply stated, the amount in total that you can contribute either to your traditional IRA or Roth IRA is US$5,500. However, people who are 50 or above can contribute an addition US$1000 for a total amount of US$ 6,500.
If we analyze the last 6 six years from 2010 to 2016 we can see there have been changes and increase in elective deferrals, annual defined contribution limits, and compensation limit over the years and on annual basis. However, in the last 6 six years, 2016 is the only year when these limits have remained unchanged. The main reason for this is that the cost of living index didn’t meet or hit the statutory thresholds this time round because of which adjustments are made.