IRS Announces 2018 Retirement Plan Contribution Limits

IRS Announces 2018 Retirement Plan Contribution Limits

After three years stuck at $18,000, the amount you can contribute to your 401(k) workplace retirement plan inches up for 2018 to $18,500. The Treasury Department has announced inflation-adjusted figures for retirement account savings for 2018, and that’s one of the tweaks that will help savers. Much stays the same, but in addition to the jump in the 401(k) limit, there are increases to income phase-outs for IRA contributors, and to the adjusted gross income limits for snagging the saver’s credit. The overall defined contribution plan moves up to $55,000–a boost for self-employed and small business owners as well as workers who have the option of stuffing their retirement nest egg with aftertax dollars. And you can divert $5,000 more (up to $130,000) of your IRA or 401(k) to QLACs—qualified longevity annuity contracts that give you guaranteed retirement income for life.

Congress bestows these tax breaks to encourage retirement savings, and the cost-of-living index changes give a little extra room for more savings. We outline the numbers below; see IRS Notice 2017-64 for technical guidance. Forbes also has details on 2018 estate and gift tax limits and 2018 tax brackets, standard deductions and more.

401(k)s. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is $18,500 for 2018—a $500 boost over 2017. Note, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.

The 401(k) Catch-Up. The catch-up contribution limit for employees age 50 or older in these plans stays the same at $6,000 for 2018. Even if you don’t turn 50 until Dec. 31, 2018, you can make the additional $6,000 catch-up contribution for the year.

SEP IRAs and Solo 401(k)s. For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) goes up from $54,000 in 2017 to $55,000 in 2018. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also goes up from $270,000 in 2017 to $275,000 in 2018. For more on savings strategies if you have self-employment income, see How Entrepreneurs Can Get Big Tax Breaks For Retirement Savings.

After-tax 401(k) contributions. If your employer allows after-tax contributions to your 401(k), you also get the advantage of the $55,000 limit for 2018. It’s an overall cap, including your $18,500 (pre-tax or Roth) salary deferrals plus any employer contributions (but not catch-up contributions). For how to rollover after-tax 401(k) money into a Roth IRA, see Roth Road To Riches.

The SIMPLE. The limit on SIMPLE retirement accounts for 2018 is $12,500, the same as in 2017. The SIMPLE catch-up limit is still $3,000. Here’s how a SIMPLE works in practice, and here’s how the 2015 year-end tax deal authorized rollovers into SIMPLEs.

Defined Benefit Plans. The limitation on the annual benefit of a defined benefit plan goes up from $215,000 in 2017 to $220,000 in 2018. These are powerful pension plans (an individual version of the kind that used to be more common in the corporate world before 401(k)s took over) for high-earning self-employed folks.