Many investors are aware of the impact that inflation can have on our ability to purchase goods and services in the future. Assuming a modest rate of 2% inflation, a car that costs $30,000 today will sell for over $45,000 by 2040. To help mitigate these rising costs, the IRS periodically increases the limits on contributions to tax-advantaged retirement accounts which can be accessed penalty-free after age 59½ and in some cases even earlier than that. To account for inflating wages, the IRS also raises the levels of income at which various tax benefits are available, otherwise known as phase-outs. The first table outlines the new 2019 limits for some of the more popular retirement contributions along with a brief description of each. The second table shows the 2019 phase-out ranges for deducting Traditional IRA contributions and saving inside of a Roth IRA. The Traditional IRA phase-outs only apply if the individual participates in a retirement plan at work.
Contribution Limits
| Type | Annual Limit | Description |
|---|---|---|
| 401(k) Salary Deferral | $19K | Amount which can be set aside by a 401(k) plan participant. |
| 457 Salary Deferral | $19K | Amount which can be set aside by a 457 plan participant. Can be made in addition to 401(k) plans when offered by employer. |
| 401(k) Catch-up Contributions | $6K | Employees over age 50 can add this to their deferral amounts. |
| Total Annual Additions | $56K | Aggregate limit on deferrals, employer contributions, and employee forfeitures that can contributed to an employer retirement account. |
| IRA Contributions | $6K | Amount which can be contributed into an IRA or Roth IRA established outside of employer. |
| IRA Catch-up Contributions | $1K | Individuals over age 50 can add this to their IRA or Roth IRA contribution amounts. |
Phase-outs
| Account | Filing Status | Phase-out Range |
|---|---|---|
| Traditional IRA | Single | $64K-$74K |
| Traditional IRA | Married, Filing Jointly | $103K-$123K* |
| Traditional IRA | Married, Filing Separately | $0-$10K |
| Roth IRA | Single | $122K-$137K |
| Roth IRA | Married, Filing Jointly | $193K-$203K |
| Roth IRA | Married, Filing Separately | $0-$10K |
| * $193K-$203K for a spouse who does not participate in a workplace retirement plan but whose spouse does | ||
