Retirement Savings and Social Security Adjustments
by Matthew Emerson
Every year, the U.S. government changes a variety of investment and benefits thresholds based on the inflation rate. But since inflation has been pretty tame, most of the changes have been modest these past ten years. The following are highlights of big changes set to begin in 2019.
Start with tax-deferred savings thresholds. The limit for 401(k) or 403(b) contributions will rise from $18,500 to $19,000—and employees 50 and older will continue to be able to contribute an additional $6,000 as a ‘catch-up’ provision. The overall limit for defined-contribution plans (employee deferrals, plan forfeitures, employer contributions) has been increased from $55,000 to $56,000.
Meanwhile, the IRS has raised the maximum contribution limit for IRA accounts for the first time in six years, from $5,500 to $6,000. Unchanged is that your Traditional IRA contributions may be deductible if you are not covered by an employer-sponsored retirement plan. If you are covered, then the deduction for contributing is phased out starting at $64,000 in income (single) or $103,000 (filing jointly)—or $10,000 for someone married filing separately.
Roth contributions are also now capped at $6,000, but your ability to contribute phases out completely at $137,000 of income (single) or $203,000 (filing jointly)—or, once again, $10,000 for someone married filing separately. The $1,000 catch-up provision to a Traditional or Roth IRA remains in place for individuals age 50 or older.
Also in 2019, Social Security beneficiaries will receive their biggest cost of living adjustment in seven years—up 2.8% from current benefits, which handily beats the 2.0% increase given out last year. On average, Social Security recipients may receive an additional $39 a month. In 2019, a retired worker at full retirement age can walk away with up to $2,861 a month, an increase of $73 a month, or $876 a year. The actual amount received varies per person based on prior work experience and when they choose to commence benefits, as the permanent reduction in benefits for filing early, and the addition to benefits for delaying remains in place.
The age that Social Security defines as “full retirement age” will also increase by two months, to 66 years and six months for people who will turn 62 in 2019. The full retirement age will increase in 2-month increments over the next two years until it reaches age 67 for everyone born in 1960 or later.
People paying into the Social Security system will also see an adjustment. Next year, earned income up to $132,900 (up from $128,400) will be subject to the 6.2% Social Security payroll tax—which means a withholding increase of $279 for people who earn the maximum. Income earned above this amount remains exempt from Social Security’s payroll tax
For any questions regarding the new contribution limits or changes to Social Security please reach out to your Relationship Manager who is happy to help.
The facts and opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Where applicable, all data and information has been gathered from sources believed to be accurate such as the internet, nonaffiliated 3rd parties, news articles and professional subscriptions but this information is not warranted to be correct, complete or true. Vantage Financial Partners Limited, Inc. and its agents are not tax advisors or accountants. We strongly encourage you review your tax situation, opportunities and liabilities with your tax advisor before making any changes. This article is not intended as tax advice.