A Planning Tool for 2016 and beyond
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This is the first of our Year-End Tips for Tax Planning series. Every few weeks until the end of the year, we’ll give you ways to keep more of what you’ve earned. Use them as building blocks in your financial planning.
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We’ve just passed the extended due date for personal returns, and one thing is clear. It’s time to start planning for this year before December 31. We’ll be starting a series of year-end tips on how to get your financial house in order before the filing season begins.
One of the most basic tasks in retirement planning is to make sure you’ve maxed out your retirement plans.
To accomplish this goal requires that you know the dollar limits of all the existing qualified plans that could be used to reduce your taxable income and increase your net worth. If we included everything in this category in one chart, it would fill a book; however, we have managed to list most of the information you’ll require in planning for tax-qualified plans for this year and the next.
The IRS has announced the 2015 contribution limits for retirement savings accounts, including contribution limits for 401(k), 403(b), and most 457 plans, as well as income limits for IRA contribution deductibility. Review the limits below and make sure you don’t miss an opportunity to reduce your tax bite for this year.
401(k), 403(b), and most 457 plans
These plans affect the largest percentage of clients. If you feel you’re behind in savings (and are over 50), use the catch-up provision to close the gap.
|
2014
|
2015
|
2016
|
|
| Age 49 and under |
$17,500
|
$18,000
|
$18,000
|
| Age 50 and older |
Additional $5,500
|
Additional $6,000
|
Additional $6,000
|
Roth and Traditional IRA contribution limits
If your business or employee doesn’t have one of the plans above, there’s a good chance you can use an IRA to increase your retirement nest egg.
Here are the current limits:
|
2014
|
2015
|
2016
|
|
| Age 49 and under |
Up to $5,500 (must have employment compensation)
|
Up to $5,500 (must have employment compensation)
|
Up to $5,500 (must have employment compensation)
|
| Age 50 and older |
Additional $1,000
|
Additional $1,000
|
Additional $1,000
|
Traditional IRA modified adjusted gross-income limit for partial deductibility
You may have noticed that I said a “good chance” of using an IRA. Not everyone qualifies for a fully-deductible traditional Individual Retirement Account. Likewise, your income may prevent from funding a Roth-IRA. Contact us if you have questions regarding your status.
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2014
|
2015
|
2016
|
|
| Single |
$60,000-$70,000
|
$61,000-$71,000
|
$61,000-$71,000
|
| Married—Filing joint returns |
$96,000-$116,000
|
$98,000-$118,000
|
$98,000-$118,000
|
| Married—Filing separately |
$0-$10,000
|
$0-$10,000
|
$0-$10,000
|
| Non-active participant spouse |
$181,000-$191,000
|
$183,000-$193,000
|
$183,000-$193,000
|
Roth IRA modified adjusted gross income phase-out ranges*
If you were wondering just what the income limits are that prevent the use of a Roth-IRA – here’s the chart to help you:
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2014
|
2015
|
2016
|
|
| Single |
$114,000 – $129,000
|
$116,000 – $131,000
|
$117,000- $131,999
|
| Married—Filing joint returns |
$181,000 – $191,000
|
$183,000 – $193,000
|
$184,000 – $193,999
|
| Married—Filing separately |
$0-$10,000
|
$0-$10,000
|
$0 – $9,999
|
| * As of 2010, there is no income limit for taxpayers who wish to convert a traditional IRA to a Roth IRA. This will create taxable income in the year of conversion. |
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All of the above just represent the tip of the iceberg as far as the opportunities for tax-deferred growth and retirement plans. We can’t cover them all in one post, so here’s a summary of some of the other available options. Don’t worry if some of the descriptions are unfamiliar to you. We can help you pick the right vehicle for your present situation.
| Type of Retirement Plan |
2016 | 2015 |
2014 | 2013 | 2012 |
| Elective Deferrals (401(k) and 403(b); not including adjustments and catch-ups) |
$18,000 | $18,000 | $17,500 | $17,500 | $17,000 |
| 457(b)(2) and 457(c)(1) Limits (not including catch-ups) |
$18,000 | $18,000 | $17,500 | $17,500 | $17,000 |
| Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plan |
$6,000 | $6,000 | $5,500 | $5,500 | $5,500 |
| Defined Benefit Plans |
$210,000 | $210,000 | $210,000 | $205,000 | $200,000 |
| Defined Contribution Plans |
$54,000 | $53,000 | $52,000 | $51,000 | $50,000 |
| Annual Compensation Limit |
$270,000 | $265,000 | $260,000 | $255,000 | $250,000 |
| Individual Retirement Accounts (“IRAs”), for individuals 49 and below |
$5,500 | $5,500 | $5,500 | $5,500 | $5,000 |
| Individual Retirement Accounts (“IRAs”), for individuals 50 and above |
$6,500 | $6,500 | $6,500 | $6,500 | $6,000 |
| SIMPLE Retirement Accounts |
$12,500 | $12,500 | $12,000 | $12,000 | $11,500 |
| SEP Compensation |
$270,000 | $265,000 | $260,000 | $255,000 | $250,000 |
| Income Subject to Social Security Tax |
$127,200 | $118,500 | $117,000 | $113,700 | $110,100 |
| FICA Tax for employers |
7.65% | 7.65% | 7.65% | 7.65% | 7.65% |
| FICA Tax for employees |
7.65% | 7.65% | 7.65% | 7.65% | 5.65% |
| Social Security Tax for employers |
6.2% | 6.2% | 6.2% | 6.2% | 6.2% |
| Social Security Tax for employees |
6.2% | 6.2% | 6.2% | 6.2% | 4.2% |
| Medicare Tax for employees and employee |
1.45% | 1.45% | 1.45% | 1.45% | 1.45% |
| SECA Tax for self-employed workers |
15.3% | 15.3% | 15.3% | 15.3% | 13.3% |
| Social Security Tax for self-employed workers |
12.4% | 12.4% | 12.4% | 12.4% | 10.4% |
| Medicare Tax for self-employed workers |
2.9% | 2.9% | 2.9% | 2.9% | 2.9% |