• Stephanie Bacak, CFP
Home/Increased Contribution Limits Announced

Category Archive: Retirement

Increased Contribution Limits Announced

The IRS just announced increased contribution limits for IRAs and many retirement plans. IRAs now have a $6000 limit, 401(k) $19,000 on the employee side, and SEPs $56,000 limit.

This is another win for investors and savers in a year where so many tax laws have changed. The new maximum contribution is the amount you can choose to add to your IRA (if you qualify) or 401(k) or SEP pre-tax and it will grow in these accounts tax-deferred until you take it out during retirement.

It may seem like normal course of annual updates but this is the first increase in IRA contributions since they set at $5500 in 2013 (and contribution limits were stuck from 1982 to 2001 at just $20000. For so long there were really no cost of living increases in the IRA and Qualified plan contribution limits so it a great opportunity for so many to be more prepared for retirement.

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Think You Can’t Have a Roth?

Good News!  While the Tax Cuts and Jobs Act of 2017 reads as though the backdoor Roth is dead, never fear!

A Roth IRA isn’t perfect for everyone, it certainly gives a unique opportunity to have assets that grow tax free and can be distributed in retirement tax free.  You forego a tax break in the current year and have a few rules applied but the pay off can be tremendous.

If you are not familiar with BackDoor Roth, it is simply contributing funds to a non-deductible IRA then in the same year or immediately, converting those funds to a Roth.  If they had time to grow then you would pay a tax on that grow.

The new tax laws prohibit recharacterizing your Roth conversion (mouthful right?). That means once your convert an IRA that creates a tax issue for you, you can no longer undue the conversion to a Roth.  So if you have an IRA that has been growing for years, consult with your tax preparer about the potential tax of you converting before you do it.

Not only is the backdoor Roth not going away, the tax-related Congressional committee has said the backdoor Roths are legitimate.  Congress doesn’t have final say over IRS rulings but there are no statutes to the contrary.

 

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