If you would rather spend your weekends researching travel destinations than IRA options, you aren't alone. According to research, most people spend more time planning where to go on vacation or which car to purchase, than they do retirement planning. Saving for retirement can be a challenge for many households in America, especially while balancing other responsibilities. Why should this be a priority? Retirement contributions are a future source of income, and contributing to these plans can often give you tax benefits now!
You can't predict the future, but there are things you can do today to prepare. With 2018 well under way, many people have planned their retirement savings. Retirement plans and rules governing contributions remain the same under the recent tax reform, allowing you to continue to contribute and ultimately reap the benefits:
401(k) Contribution Limits
The contribution an employee elects to transfer from their salary to their employer-sponsored 401(k) plan increases from $18,000 to $18,500 in 2018. Employees age 50 or older may contribute up to an additional $6,000 for a total of $24,500. The total contribution limit, for both employee and employer, increased from $54,000 to $55,000 ($61,000 if age 50 or older).
Roth IRA Income Limits
The IRA contribution limit remains at $5,500 in 2018, the catch-up contribution for people 50 or older will stay at $1,000. If you turn 50 in 2018, you can make the full $6,500 contribution any time after January 1, 2018; you don't need to wait until your birthday.
Traditional IRA Deduction Limits
The income limit for a full deduction for your contribution to a traditional IRA, while participating in a workplace retirement, will increase by $1,000 for singles to $63,000 in 2018. It will increase by $2,000 for taxpayers who are Married Filing Jointly, to $101,000 in 2018. Remember, the deduction is phased out when your income goes above $73,000 in 2018 for singles; $121,000 in 2018 for Married Filing Jointly.
These contributions are a way to boost your retirement savings while decreasing your taxes now, if you take advantage of special tax incentives like the commonly overlooked Saver’s Credit (formerly known as the Retirement Savings Contribution Credit). If you don't know about the tax credit for retirement savers, it could be costing you money. "The saver's credit is better than a deduction," says Mark Steber, Chief Tax Officer of Jackson Hewitt. "It's reduced tax liability or money back on your tax return."
This credit is different than a tax deduction; this tax credit is dollar-for-dollar to offset against the taxes you owe. You may qualify for the credit if your income falls within the guidelines: $31,500 for singles and Married Filing Separately, $47,250 for Head of Household, and $63,000 for Married Filing Jointly.
As we approach the tax-filing deadline for the 2017 tax year, this is a perfect time to make sure you’ve taken advantage of every last-minute tax benefit for your retirement savings, and to start thinking about some simple ways to boost retirement savings and lower your overall tax liability for 2018. One benefit of tax-planning is reducing your taxable income. By maxing out your retirement contributions, you’re preparing a more secure future for yourself while minimizing the taxes you may owe. The Saver's Credit is literally free money that the government is willing to give you in exchange for putting money away for retirement; the money you contribute is tax-deferred AND you get a tax credit for doing so, creating the ultimate win-win situation.
At Jackson Hewitt, our goal is to save money and get you more. If there’s an opportunity, we want you to take the dough for the largest refund possible!