This article was originally published in Hershey Advisors’ monthly Tax and Business Alert.
The IRS has announced cost-of-living adjustments affecting the dollar limitations for retirement plan contributions. Several of the limitations are higher for 2015 because the increase in the cost-of-living index met the statutory threshold. However, some limitations did not meet that threshold and remain unchanged from 2015.
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), and most 457 plans, and the federal government’s Thrift Savings Plan, increased from $17,500 in 2014 to $18,000 in 2015. The catch-up contribution limit for those age 50 and over increased from $5,500 in 2014 to $6,000 in 2015.
The contribution limit for both Roth and traditional IRAs remains unchanged. You can contribute up to $5,500 ($6,500 if you are age 50 or older by year end) to your IRA in 2015 if certain conditions are met (i.e., sufficient earned income). For married couples, the combined contribution limits are $11,000 ($5,500 each) and $13,000 ($6,500 each if both are age 50 by year end) when a joint return is filed, provided one or both spouses had at least that much earned income.
Keep in mind that contributions to traditional IRAs may be tax-deductible, subject to specific limitations that increase for 2015. When you establish and contribute to a Roth IRA, contributions are not deductible, but withdrawals are tax-free when specific requirements are satisfied. In addition, there are no mandatory distribution rules at age 70½ with a Roth IRA, and you can continue to make contributions past age 70½ if you meet the earned income requirement.
The 2015 limitation for SIMPLE retirement accounts increased $500, to $12,500. The SIMPLE catch-up contribution for those age 50 by year end also increased by $500, to $3,000.
Finally, the 2015 contribution limit for profit-sharing, SEP, and money purchase plans is the lesser of (1) 25% of the employee’s compensation — limited to $265,000, an increase of $5,000 from 2014; or (2) $53,000, an increase of $1,000 from 2014.