As is the case every year, the New Year brings changes for retirement plan contributions and limits, though 2016 will have more muted changes than most years. Retirement plans, like employer-sponsored plans and self-employed plans, will be affected. With inflation being on the low end of the scale, the changes in contribution limits generally remain unchanged for 2016, while income limits will increase modestly in some cases.
Employer-Sponsored Retirement Plan Limits
401(k) plans. For all employer-sponsored retirement plans — like 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan — the contribution limits for 2016 are $18,000.
401(k) catch-up. The catch-up contribution limit for employees ages 50 or older who participate in the above mentioned plans remains at $6,000 for 2016. Even if you don’t turn 50 until Dec. 31, 2016, you can make the additional $6,000 catch-up provision for the current year.
IRA plans. IRA (or Individual Retirement Account) contribution limits have stayed the same since 2013. The annual $5,500 limit remains unchanged in 2016, and many blame this on low-inflation problems. Additionally, the catch-up provision for IRAs is unchanged at $1,000 because it is not subject to an annual cost-of-living adjustment. This makes the maximum IRA contribution for those 50 and older $6,500 for 2016.
Traditional IRA Income Limits
If you or your spouse is covered by another retirement plan, IRAs have income limits beyond which their tax deductibility is phased out, until it disappears completely.
Here are the income range phaseouts for 2016 for those who are covered by another retirement plan — they apply strictly to deductible traditional IRAs:
- Single taxpayers — between $61,000 and $71,000
- Married filing jointly — between $98,000 and $118,000
- Married filing jointly in which the spouse making the IRA contribution is NOT covered by a pension, but the other spouse is — between $184,000 and $194,000
- Married filing separately — between $0 and $10,000
Roth IRA Income Limits
Roth IRA eligibility is also subject to phaseout based on income, but those limits are different than what they are for traditional IRAs. The income level phaseouts for 2016 are as follows:
- Single taxpayers — between $117,000 and $132,000
- Married filing jointly — between $184,000 and $194,000
- Married filing separately — between $0 to $10,000
SEP IRA, SIMPLE IRAs, and Solo 401(k) Plans
Contributions to self-employed retirement plans remain unchanged in 2016 compared to 2015 limits:
SIMPLE IRA. $12,500 in 2016. The catch-up provision for taxpayers age 50 and older remains unchanged at $3,000 in 2016.
SEP IRA. Remains unchanged at $53,000 in 2016. SEP IRA contribution maximums are based on a contribution rate of up to 25% of gross income (after subtracting out the amount of the contribution itself). That income limit remains unchanged at $265,000 in 2016.
Solo 401(k). Matching the employee 401(k) limits, contributions to a Solo 401(k) are the same as the SEP IRA contribution limits. They remain unchanged at $53,000 in 2016. The catch-up provision for taxpayers age 50 and older remains unchanged at $6,000 in 2016.
2016 Retirement Contribution Limits Table
|401(k), 403(b), or 457 plans||$18,000||$18,000||None|
|50+ catch-up limits for above||$6,000||$6,000||None|
|Traditional IRA plans||$5,500||$5,500||None|
|Roth IRA plans||$5,500||$5,500||None|
|50+ catch-up limit for IRAs||$1,000||$1,000||None|
|50+ catch-up limit for SIMPLE IRA||$3,000||$3,000||None|
|50+ catch-up limit for Solo 401(k)||$6,000||$6,000||None|
There aren’t any changes for contribution amounts in 2016, however some of the income limits governing eligibility to contribute to the various retirement accounts did increase slightly, as stated above.
Retirement Saver’s Credit Changes
When contributing to a retirement account, whether an employer-sponsored plan or an IRA, you could be eligible for a tax credit on your income tax return. For 2016 the AGI (Adjusted Gross Income) limit for the saver’s credit (also known as the retirement savings contribution credit) is $61,500 for couples married filing jointly, up from $61,000 in 2015, and $46,125 in 2016 for heads of household, up from $45,750 in 2015.
For single individuals or those married filing separately, the limit is $30,750 for 2016, up from $30,500 in 2015. This credit is an incentive targeted at low- and moderate-income workers to encourage retirement savings.
Note: The IRS releases updated limits for the following year in October. Check back after October 2016 for the updated 2017 limits.