Workers will be able to contribute more to their retirement accounts in 2019.
The limit increased to $19,000, up $500 from $18,500 in 2018, for 401(k) plans, as well as 403(b) plans, most 457 plans and the federal government's Thrift Savings Plan, the Internal Revenue Service said Thursday. The catch-up contribution limit for employees 50 and older remains unchanged at $6,000, which means an employee 50 or older can put as much as $25,000 ($19,000+$6,000) in their 401(k) plan. These accounts also allow employer matches.
Though $19,000 is how much of an employee's pretax earnings can be deferred, the overall limit for defined-contribution plans (such as 401(k) plans) increased to $56,000, up from $55,000, in 2019. This limit includes employee and employer contributions and profit-sharing contributions.
The IRS is also lifting the contribution limit for individual retirement accounts for the first time in six years, to $6,000 up from $5,500 in 2018. Workers 50 and older can save as much as $7,000 in an IRA with the catch-up contribution limit, which remains at $1,000. Deductions for these contributions are subject to income phaseout ranges, depending on their earnings and if they have access to a workplace retirement program:
- For 2019, single taxpayers covered by a workplace retirement plan have a phaseout range between $64,000 and $74,000, which means anything below $64,000 is fully deductible and anything above $74,000 is not.
- For married couples filing jointly, where the spouse making the IRA contributions is covered by a workplace retirement plan, the phaseout range is $103,000 to $123,000. For an IRA contribution who is not covered by a workplace retirement plan but is married to someone who is, the deduction is phased out if the couple's income is between $193,000 and $203,000.
- For a married individual filing separately and is covered by a workplace retirement plan, the phaseout is between $0 and $10,000.
Roth IRAs have separate income limits and no deductions:
- For 2019, single taxpayers or heads of household have an income phaseout range between $122,000 and $137,000.
- For married couples filing jointly, the income phaseout range is $193,000 to $203,000.
- For a married individual filing separately, the range remains at $0 to $10,000.
The income limit for the Saver's Credit for low- and moderate-income workers has also increased. For married couples filing jointly, the limit is now $64,000, up from $63,000; for heads of household, it's $48,000, up from $47,250; and for singles and married individuals filing separately, it's $32,000, up from $31,500.
Increasing the 401(k) contribution limit is great for savers, but not many people take advantage of it. About 10% of Vanguard participants maxed out their 401(k) contributions in 2016 (when the limit was $18,000), according to a Center for Retirement Research at Boston College analysis, a drop from 12% in 2013 when the limit was $17,500. How much the general population of workers maxing out their 401(k) plans may be even lower, the report said, considering Vanguard has a "disproportionate number of large plans with higher earners."
This news, while good for many who would like to bolster their retirement savings, does not apply to all — or even many — Americans. Not all workers have access to an employer-sponsored retirement account, and even when they do, they may not save — possibly because they don't know they should, or they simply can't afford to do so. Only about 54 million American workers put money into a 401(k) plan in 2015, the Investment Company Institute found, while 150 million were employed in that year, according to the Bureau of Labor Statistics.
How much a person needs to save for retirement largely depends on what they intend to do in retirement, including where they want to live, if they'll have paid off a mortgage or plan to rent, what they'll want to do during that time off. But it also depends on some of the biggest unknowns, including health and wellness, or potential emergencies. A 65-year-old American couple retiring in 2018 could expect to spend $280,000 for health care expenses in retirement, including Medicare coverage and co-pays, over-the-counter medications and vision or dental (but not long-term care).