An IRA is a valuable tool for retirement saving.
Have you begun planning for retirement?
Good.
As long as you hold a job, it is never too early to begin planning and saving.
IRAs can be a useful saving tool.
According to a recent Kiplinger article titled “2018 Retirement Contribution Limits for 401(k)s and IRAs,” 2018 may bring helpful IRS changes for some savers.
What are they?
401(k)s
With a traditional 401(k), you can invest and save pre-tax through an employer program.
What does this mean?
In short, you will not owe taxes on these contributions until you withdraw the money.
What are the annual contribution limits?
In 2018, they will increase by $500, going from $18,000 to $18,500.
Is this increase limited to 401(k) plans?
No.
The federal government’s Thrift Savings Plan, 403(b), and 457 plans will also see a contribution limit raised.
What if you are age 50 or older?
You can still contribute an extra $6,000 per year to catch up.
IRAs
You do not need to have a 401(k) plan from your employer to begin saving for your retirement.
An IRA is an "individual retirement account" through which people can invest for retirement.
Is there a limit increase?
No.
The limit will still be $5,500 in 2018.
What if you are age 50 or older?
The additional contribution limit will remain the same at $1,000.
When can you take advantage of this extra contribution?
If you turn 50 in 2018, you can make the full contribution any time after January 1.
Roth IRAs
Roth IRAs are unique because contributions are made post-tax.
Although you cannot claim a deduction on your income tax, these contributions will grow tax free.
Because tax has already been paid, you can withdrawal money without paying taxes.
Are there changes?
Yes.
The modified adjusted gross income limit for contributions has been raised.
Those who are singles or the head of the household and have a modified adjusted gross income less than $120,000 can make the maximum contributions to a Roth.
The contribution amount is completely phased out at incomes greater than $135,000.
For married couples filing jointly, the modified adjusted gross income must be under $189,000.
The contributions amount is completely phased out at incomes greater than $199,000.
With these changes, you may be able to save even more for retirement.
Retirement is not cheap.
Be sure to maximize your savings and investments as early as possible.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: Forbes (October 31, 2017) “Managing Finances For A Loved One With Dementia”
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