- 2016 Retirement Plan Limits
- 401(k) Plans
- Tax Sheltered Annuities
- Traditional & Roth IRAs
- Self-Employment Plans (SEPs)
- Keogh Profit Sharing Plans
- Simple Plans
Saving for retirement is one of the most important things you should do. Even though retirement may seem far away now, that time will eventually arrive and you will want to be prepared for it with adequate savings. Contributing to tax-advantaged retirement plans while you are working is one of the best ways to build up a nest egg for your retirement years. That said, the tax law doesn’t allow unlimited annual contributions to these plans.
If you have been wondering how much you can contribute to your retirement plans in 2016, the IRS has released the inflation-adjusted limits for next year’s contributions. Since inflation has been low this past year (at least according to the government’s calculation), most limits won’t increase over what they were in 2015, but some of the AGI phaseout thresholds that work to reduce allowable contributions will change. Here’s a review of the 2016 numbers:
For 401(k) plans, the maximum contribution will be $18,000 again. If you are age 50 or over, that limit is increased by a so-called “catch-up” contribution to a maximum of $24,000, the same as in ’15. These limits also apply to 403(b) tax sheltered annuities and 457 deferred compensation plans of state and local governments and tax-exempt organizations.
Traditional IRA and Roth IRA contributions are limited to a combined total of $5,500 ($6,500 if you are age 50 or over), also unchanged from 2015. However, both types of IRAs have certain income (AGI) limitations.
When you are an “active participant” in another qualified plan, the traditional IRA contributions are only deductible by lower-income individuals, and the deductibility phases out for unmarried tax filers with AGIs between $61,000 and $70,999. For married joint filers the phaseout range is between $98,000 and $117,999. The phaseout of traditional IRA contributions starts at $0 AGI for married individuals filing separately and tops out at $10,000—essentially, MFS filers rarely qualify to contribute to an IRA if they or their spouses also participate in an employer’s plan. For married couples in which one spouse is an active participant and the other is not, the phaseout AGI limitation for the non-active participant spouse has gone up by $1,000 and is between $184,000 and $193,999.
Roth IRA contributions are never tax deductible, although they do enjoy tax-free accumulation. However, the contribution limits are phased out for unmarried taxpayers with AGIs between $117,000 and $131,999. For married joint filers the phaseout range is between $184,000 and $193,999. Each of these amounts reflects a $1,000 increase for 2016. Married individuals filing separately are not allowed Roth IRA contributions if their AGI is $10,000 or more. The AGI phaseouts will limit the contributions you can make to a Roth IRA even if you do not participate in an employer’s plan or other qualified plan. Unlike traditional IRAs, contributions to which cannot be made after you reach age 70½, contributions can be made to a Roth IRA as long as you have earned income of an equal amount.
If you are self-employed and have a self-employed retirement plan (SEP), the maximum contribution is the lessor of $53,000 (the same limit as for 2015) or 20% of the net earnings from self-employment; contributions are allowed regardless of age. If your retirement plan is a profit-sharing Keogh plan, the limitations are the same. For defined benefit plans the amount contributed can’t create an annual benefit in excess of the greater of $210,000 or 100% of your average compensation for the highest 3 years.
Simple IRA or Simple 401(k) plan contribution limits will be $12,500 or $15,500 for those ages 50 or over. These amounts are unchanged from 2015.
If have questions or would like to discuss your retirement contribution options, please call.