Are You Fully Utilizing Your IRA and Retirement Plan Contribution Limits

It is not too late to make contributions to your retirement plan for 2016. We also recommend that individuals try to take full advantage of the amounts the IRS allows to be contributed to tax advantaged plans including 401k plans and IRAs. The chart below summarizes the limits available.

IRA Contribution Limits

The maximum amount you can contribute to a traditional IRA or Roth IRA in 2016 is $5,500 (or 100% of our earned income, if less), and will remain unchanged in 2017. The maximum catch-up contribution for those age 50 or older also remains at $1,000. (You can contribute to both a traditional and Roth IRA, but your total contributions can’t exceed these annual limits). A tax deduction may also be available to some individuals.

Traditional IRA Deduction Limits:

The income limits for determining the deductibility of traditional IRA contributions increase and is dependent upon your income (“modified adjusted gross income,” or MAGI).  If you are active participants in a qualified plan:

For an IRA contributor who is not an active participant and is married to someone who is an active participant, the deduction is phased out if the couple’s MAGI is between $184,000 and $194,000 in 2016 (from between $186,000 and $196,000 in 2017) and eliminated if your MAGI exceeds $194,000 ($196,000 in 2017).

Roth IRA Contribution Limits:

The income limits for determining how much you can contribute to a Roth IRA also remain the same. If your filing status is single/head of household, you can contribute the full $5,500 to a Roth IRA in 2016 or 2017 if your MAGI is $117,000 in 2016 or $118,000 in 2017. And if you’re married and filing a joint return, you can make a full contribution if your MAGI is $184,000 in 2016 or $186,000 in 2017. (Again, contributions can’t exceed 100% of your earned income).

Employer Retirement Plans:

The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan remains the same for 2017. The limit (which also applies to 403(b), 457(b), and SAR-SEP plans, as well as the Federal Thrift Plan) is $18,000 in 2016 and remains unchanged in 2017. If you’re age 50 or older, you can also make catch-up contributions of up to $6,000 to these plans in 2016 and in 2017. (Special catch-up limits apply to certain participants in 403(b) and 457(b) plans).

If you participate in more than one retirement plan, your total elective deferrals can’t exceed the annual limit ($18,000 in 2016 and 2017 plus any applicable catch-up contribution). Deferrals to 401(k) plans, 403(b) plans, SIMPLE plans, and SAR-SEPs are included in this limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan–a total of $36,000 in 2016 and 2017 (plus any catch-up contributions).

The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan remains at $12,500 for 2016 and 2017. The catch-up limit for those age 50 or older remains at $3,000.

Plan type:

The maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) plan or profit-sharing plan) in 2016 is $53,000 and $54,000 in 2017, plus age-50 catch-up contributions. (This includes both your contributions and your employer’s contributions. Special rules apply if your employer sponsors more than one retirement plan).

Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans in 2016 remains at $265,000 and increases to $270,000in 2017). The dollar threshold for determining highly compensated employees is $120,000 and 2017.

Our team of Certified Financial Life Planners can help make sure you are on the path to a secure retirement.

Contact Chris Schiffer at cschiffer@aepg.com or 908-821-9764 if you have any questions.

Important Disclosures: Please remember that different types of investments involve varying degrees of risk, including the loss of money invested.  Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by American Economic Planning Group, Inc. (“AEPG”) will be profitable. Definitions of any indices listed herein are available upon request. Please remember to contact AEPG if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. This article is not a substitute for personalized advice from AEPG and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Investment decisions should always be made based on the investors specific financial needs, objectives, goals, time horizon, and risk tolerance. Please remember to contact AEPG Wealth Strategies if there are any changes in your personal or financial circumstances or investment objectives as these changes may impact our previous recommendations.  This information is current only as of the date on which it was sent.  The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of AEPG.  Descriptions of AEPG’s process and strategies are based on general practice and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.