Each year, the government makes changes to the rules of 401(k) and IRA contributions. Communicating the new contribution limits and income thresholds can help your employees re-evaluate the steps they should to take to save for their retirement most optimally.
In this article, we’ll discuss the 2019 contribution limits and rules, and how they may impact your employees’ retirement goals.
The Essentials of Retirement Plans and Their Contribution Rules
There are two primary retirement plans: employer-sponsored retirement plans and individual retirement accounts/arrangements (i.e. IRAs). Generally, an IRA is a tax-advantaged retirement account that any individual (who qualifies under the rules below) can open up on their own, unrelated to their employment situation. Meanwhile, employer-sponsored plans, like 401(k), 403(b), and 457 plans are only available if you, as an employer, offer one. If eligible, you can use both an IRA and an employer-sponsored plan.
Because IRAs and employer-sponsored plans have tax advantages, rules and limitations are part of the deal. Generally, there is a maximum you can contribute to IRAs and employer plans with tax advantages in any given year; your eligibility to make the full contribution is limited by your annual income.
Your employees deserve more than just a “good enough” 401(k) plan. Give them the Betterment 401(k).
In 2019, you can probably contribute $500 more than last year.
Whenever rules are updated, it’s useful to know how the rules have changed from previous years. Below, we’ll show you some of the major changes for 2019. You can also read the full IRS announcement, which can be found in the 2019 IRS news release.
Some rules take into account your taxable income, and estimating that number can be complicated. We don’t delve into the mechanics of making calculations here, and since Betterment is not a tax advisor, we suggest talking with a qualified tax professional. Learn more about tax advisors.
1. Employer-sponsored Plan Contribution Limits
The limit on annual contributions to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plans increased to $19,000, compared to $18,500 in 2018. The additional catch-up contribution limit will remain at $6,000 for a total contribution limit of $25,000 for employees 50 years old and older.
2. IRA Contribution Limits
The limit on annual contributions to an IRA increased to $6,000, compared to $5,500 in 2018. The additional catch-up contribution limit for individuals 50 years old and over will remain at $1,000. The total contribution limit is $7,000 for employees 50 years old and older.
Retirement Account Contribution Limits
|Contribution Limits||Catch-up Contribution Limit
(for individuals age 50 and above)
Catch-up Contributions: Individuals who are age 50 or over at the end of the calendar year can make annual catch-up contributions on top of the normal contribution limits. Contribution limits for catch-up contribution have not changed. For more information on catch-up contribution, please see the expanded IRS rules.
3. Income limits for Deductible Traditional IRA Contributions
Contributions to a traditional IRA are only deductible on your tax return if you have a modified adjusted gross income (MAGI) below a certain threshold. Above that threshold, there’s a range in which your eligible for a partial deduction, and after that so-called “phase-out” range, your contributions are not deductible. The phase out ranges are also dependent on if you (or your spouse) are covered by an employer sponsored plan through their work.
Traditional IRA Deductibility Limits If You Have an Employer-sponsored Plan
|Filing Status||Income (MAGI)||Income (MAGI)||Deduction Limit|
|Single individuals||≤ $63,000||≤ $64,000||Full deduction up to the contribution limit|
|$63,000 – $73,000||$64,000 – $74,000||Partial deduction|
|≥ $73,000||≥ $74,000||No deduction|
|Married, filing jointly||≤ $101,000||≤ $103,000||Full deduction up to the contribution limit|
|$101,000 – $121,000||$103,000 – $123,000||Partial deduction|
|≥ $121,000||≥ $123,000||No deduction|
Traditional IRA Deductibility Limits If You Don’t Have an Employer-sponsored Plan
|Filing Status||Income (MAGI)||Income (MAGI)||Deduction Limit|
|Single individuals||All incomes||All incomes||Full deduction up to the contribution limit|
|Married, filing jointly + neither you or your spouse has an employer-sponsored plan||All incomes||All incomes||Full deduction up to the contribution limit|
|Married, filing jointly + spouse has an employer-sponsored plan||≤ $189,000||≤ $193,000||Full deduction up to the contribution limit|
|$189,000 – $199,000||$193,000 – $203,000||Partial deduction|
|≥ $199,000||≥ $203,000||No deduction|
For more information and guidance regarding income limits for deductible IRA contributions, consult the expanded IRS Rules.
4. Income Limits for Roth IRA Contributions
To contribute to and max out Roth IRA contributions, you’ll have to have an income under a certain threshold. Eligibility to contribute to a Roth IRA starts to phase out at $122,000 for single filers and $193,000 for married couples (filing jointly) in 2019. That’s a higher start of the phase out threshold than in 2018, which began at $120,000 for single individuals and $189,000 for married couples.
Income Ranges for Partial Eligibility to Contribute to a Roth IRA
Below are the ranges where you can only partially contribute up to maximum of $6,000 to a Roth IRA. If your income falls below the range, you can contribute the full amount. Above the range, you cannot contribute into a Roth IRA for the year.
|Tax Filing Status||2018 MAGI||2019 MAGI|
|Single||$120,000 – $135,000||$122,000 – $137,000|
|Married Filing Jointly||$189,000 – $199,000||$193,000 – $203,000|
For more information and guidance regarding Roth income limits, consult the expanded IRS rules.
5. Income Limits for the Retirement Savings Contributions Credit (Saver’s Credit)
The so-called “saver’s credit” is a tax credit available to individuals with a fairly low income who make contributions to their employer sponsored plan or their IRA. This credit offsets the individual’s income-tax liability. The tax credit phases out as the individual’s adjusted gross income (AGI) increases, beginning at $19,000.
In 2019 AGI limit for the Retirement Savings Contribution Credit increases to:
- $47,250 for married individuals filing separately
- $48,000 for heads of household
- $64,000 for married couples filing jointly
If you save for retirement and your income falls below these ranges, you may be eligible for the credit. The maximum credit is available to those who have an AGI below or at the bottom of the ranges shown in the table below.
Saver’s Credit Income Limits
|Tax Filing Status||2018 AGI||2019 AGI|
|Single||$19,000 – $31,500||$19,250 – $32,000|
|Married Filing Jointly||$38,000 – $63,000||$38,500 – $64,000|
For more information and guidance regarding the Saver’s Credit, consult the expanded IRS rules.
Betterment’s retirement advice can help your employees decide how to save.
Whenever contribution rules change, we update Betterment’s advice. When an employee signs up or logs in to Betterment, they can get personalized advice on how to save for retirement. We prioritize which accounts are smart to save into first, and then what to max out next.
In addition, a retirement goal at Betterment can take into account outside holdings, such as prior employer-sponsored plans or even other retirement accounts like Thrift Savings Plans, or ESOPs.
To help get your employees’ retirement plans in order, encourage them to start using the power of Betterment’s personalized guidance technology, and if you don’t already, consider contacting us to learn more about the Betterment for Business 401(k).