One of the most fundamental aspects of tax planning for many people is maximizing the tax-shielding features of their retirement savings. This includes pensions, 401(k)s and individual retirement arrangements (IRAs).
There are of course very specific rules about the tax treatment of these accounts. These rules govern contributions, withdrawals and other administrative aspects of the accounts.
These rules have never included overall limits on the amount that can be accumulated in an IRA account. But as we discussed a few weeks ago, in our October 1 post, Congress has recently been considering imposing such limits.
In today’s post, we will update you on a different aspect of IRAs: cost-of-living adjustments for the upcoming tax year that will affect such things as yearly contribution limits for 401(k)s and other retirement accounts.
Under federal law, the amount of money that employees can contribute to 401(k)s or a few other types of retirement plans is currently $17,500. Under the cost-of-living adjustments announced by the IRS today, that amount will rise to $18,000.
For IRAs, the annual contribution limit will remain the same at $5,500. There will also be no change in the additional amount — called the catch-up contribution — that can be put into an IRA by people who are 50 or more. That amount will still be $1,000.
Not surprisingly, however, the rules for traditional IRAs and Roth IRAs contain various differences. These are differences that are worth discussing with a tax attorney. Such discussions can help you make full use of the tax benefits of retirement accounts without getting into a tax dispute with the IRS.
Source: IRS.gov, “IRS Announces 2015 Pension Plan Limitations; Taxpayers May Contribute up to $18,000 to their 401(k) plans in 2015