The Planner's Perspective: Your Retirement Plan Updates for 2019
By Paul Morrone CFP®, CPA/PFS, MSA
The new year brought a welcomed increase to retirement plan contribution limits, as allowable 401(k) pretax elective deferral limits were raised to $19,000 from $18,500 in 2018. Taking advantage of this $500 increase may require some action on your part as a plan participant. If you are currently ‘maxed out,’ you may want to confirm that your 2019 deferrals are set to the full $19,000 (as opposed to last year’s limit) as it may or may not have been updated automatically. There are also several other considerations that should be reviewed as soon as possible to make sure your retirement savings plan stays on track.
For those who turn 50 anytime during the 2019 calendar year, you may have the option to take advantage of the additional $6,000 catch up contribution for the first time, effectively increasing your total maximum deferral into your workplace 401(k) to $25,000 for the year. The catch-up contribution available to those over 50 works out to an even $500/month. By updating your election earlier in the year, you can spread the cash flow burden of the additional savings between all your paychecks, rather than trying to play catch-up if you don’t address it until later in the year. Remember, you can update your deferral amounts in January even if your 50th birthday isn’t until December.
Similarly, for those making systematic traditional IRA/ROTH IRA contributions still set to the 2018 limit of $5,500 (i.e. $458/month), you should use this opportunity to increase those amounts to $500/month to coincide with the new $6,000 limitation. Those over 50 are also eligible for the catch-up contribution for IRAs of $1,000. For those contributing to a ROTH, make sure that any changes to your household income for the new year will not reduce or eliminate your ability to contribute directly to a ROTH IRA as phaseouts begin once your AGI reaches $122k (single) or $193k (joint).
In certain circumstances, participants may also have the ability to make non-deductible or after-tax contributions to their plan in addition to the pre-tax salary deferrals. Taking advantage of these niche plan provisions allow employees to make total contributions (regular and catch up salary deferrals + employer match + profit sharing contributions + after-tax deferrals) to the plan of $55,000 in 2018. The inflation adjusted figures for 2019 also affected the overall contribution limit, which increased to $56,000 for the year. If your plan currently allows after-tax deferrals and you have the cash flow to support this level of saving, it may be wise to consider the increased overall limit as well (known as the Section 415 limit). Not all plans offer such liberal contribution provisions, but they are becoming more commonplace in today’s marketplace than they were just a short time ago. If you are unsure if your plan allows for after-tax deferrals, refer to your employer’s Summary Plan Document which should include information on this specific topic.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Please contact your tax advisor prior to taking any action. US Wealth Management and LPL Financial do not provide tax advice.
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