We all know that we should be saving for retirement. Whether you have a 401k, a pension, or an IRA, retirement accounts give individuals great tax breaks to help them prepare for their golden years. It is often reported that people misjudge how much they will need in retirement. The rule of thumb for a long time has been you need your retirement income to supplement 80% of your income when you were working; however, this number is different for everyone based on a number of factors. One thing is certain. Maxing out your retirement accounts never hurts. For 2017, the IRA contribution limits stayed the same as they were in 2016. You could contribute up to $5,500 towards your IRA, and if you were 50 or older you can contribute an additional $1,000 bringing your total yearly contribution limit to $6,500. The 2018 Roth IRA contribution limits won’t be released until October of this year, but we can speculate what they might be.
Each year, the Internal Revenue Service (IRS) sets the income and contribution limits for IRA’s. The last year that the IRS raise the contribution limit was for the tax year of 2013. The contribution amounts for traditional and Roth IRA’s are the same each year. They are evaluated and raised based on inflation. The IRS will raise contribution limits in increments of $500. This means that the next time they are raised, people under the age of 50 will be able to contribute a maximum of $6,000 a year to their IRA, while people over the age of 50 will be able to most likely contribute $7,000 a year. In order for this raise in contribution limits to take place, inflation would need to be around 9% over a period of time for this to occur.
9% of $5,500 = $495
This would be near the $500 increment level the IRS would like to see to raise the contribution limits.
Since the last time the IRS raised contribution limits in 2013, inflation has risen by about 6.5% based on data tables. This means that another 2.5% increase in inflation would be needed for the IRS to raise the contribution limits for traditional and Roth IRA’s. With all of this being said, the most likely scenario is that 2018 Roth IRA contribution limits will remain unchanged. A more likely scenario would be a raise in the contribution limits for 2019.
Despite the fact that the 2018 Roth IRA contribution limits won’t change, the IRS will still probably change some limits. The limit they will change, and almost always do, is the income limits associated with eligibility for participation in IRA’s. For 2017, the IRS raised the income phase-out limit to $118,000 for single earners and $186,000 for married, joint filling earners, raises of $1,000 and $2,000 respectively.
There are still many months to wait until the IRS reveals their 2018 Roth IRA contribution limits. An increase in the limit would allow individuals to save an additional $500 a year in a tax-advantaged account. Although an increase is doubtful, we can still remain hopeful.
Budget Smart, Invest Wise