IRS Posts New Limits for 2015 Retirement Plan Contributions

The IRS has released its new contribution levels for tax-deferred savings plans in 2015 — and the higher dollar figures may mean more to clients right now than in other years.

That’s the message from CFP/CPA Karl Schwartz, a Miami-based advisor with Hewins Financial Advisors, who chalks the greater impact up to slow wage growth.

Karl SchwartzKey for advisors, he says, is to “be aware” of changes in your clients’ lives. “You might have a client who’s just turned 50 years old this year. Instead of doing the basic 401(k) contribution, they can now do the catch-up amount. That can really help someone out in putting money away so that they can have enough money one day in retirement.”

The new IRS rules for the 2015 tax year, released Thursday, include higher contribution levels for a host of tax-deferred savings plans, as well as increased maximum income levels for investors who might want to use these plans and other strategies.

Key Rule Changes

Here are a few rule changes that advisors should pay particular attention to.

— Clients may now put $18,000 (up from $17,500) into 401(k), 403(b) and most 457 plans, as well as the federal government’s Thrift Savings Plan.

— Clients aged 50 and older can also make “catch-up” contributions of $6,000 annually, increased from $5,500, into these plans.

— The phaseout range on deductions for singles and heads of household who are contributing to traditional IRAs and are already covered by workplace retirement plans has changed: The phaseouts affect taxpayers with modified adjusted gross income between $61,000 and $71,000 (up from $60,000 to $70,000 last year).

— The phaseout thresholds also have increased for married clients with one or the other spouse contributing to IRAs, while also contributing to workplace retirement plans. (The full list of rule changes is on the IRS website.)

— For Roth IRAs, income phase-out ranges have increased, across all the above taxpayer profiles.

Saver’s Credit

Schwartz even thinks the “saver’s” tax credit — aimed at low- to moderate-income households — could help some high-net-worth families.

The credit applies to married clients filing jointly who have income up to $61,000 (increased from $60,000 this year); different levels are set for single clients and those married but filing separately. If those clients contribute up to $5,000 to an IRA, Schwartz says, they will not only benefit from the tax-deferred savings, but will also get a tax credit that will decrease their taxable income by a percentage based on their income level.

This strategy could be helpful for entrepreneurial clients, who tend to have many of their assets and income tied up in a business, Schwartz says — or for high-net-worth clients who may have low income levels in a given year. “It can be real powerful for someone in this income range,” Schwartz says.

High-Income Advantages

Even when high-income clients can’t take a tax deduction for IRA contributions, Schwartz says, they may still want to make them. He cites two reasons: the tax-deferred growth of their investments and the ability to convert the amount they contribute to a Roth IRA.

“Doing the traditional $5,000 contribution to an IRA and converting to a Roth is sort of a back-door way for getting into a Roth” for people with higher incomes, Schwartz says. It may be worth it, he adds, “because the Roth IRA is so powerful.”

He added one caveat, however: “Say each spouse has a 401(k) and you don’t have any other investments, this is something you can easily do. But, if you have other outside IRA balances, those will be factored into this equation and it may not work this smoothly.”

Republished with permission. Original article By Ann Marsh, Financial Planning Magazine

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
OneBite Editorial Staff
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IRS Posts New Limits for 2015 Retirement Plan Contributions

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