Each year, the IRS makes cost-of-living adjustments to all things tax-related. These adjustments affect everything from income tax brackets to retirement savings limits to tax deductions and credits.
One of the most important cost-of-living adjustments is contribution and income limits for tax-advantaged retirement accounts, such as 401(k)s, IRAs and 403(b) plans. Cost-of-living adjustments are based on the Consumer Price Index, which typically rises each year.
This year, according to the IRS, the Consumer Price Index didn’t increase enough to require adjusting many of these limits. Still, we will see some retirement-related changes in 2014, including:
- Phaseout limits for deductible traditional IRA contributions. With a traditional IRA, you can only deduct contributions from your income taxes if you meet the income limitations. The income limits have risen a bit this year. You can find specific income limits here.
- Phaseout limits for Roth IRAs. Like the income limits for deductible traditional IRA contributions, the income limits for contributing to a Roth IRA have gone up a bit, too. You can check out the new limits here.
- AGI limits for saver’s credit. The income limit for the retirement savings contribution credit, a retirement savings credit for low- and moderate-income workers, has gone up. The limits are now $60,000 for married couples filing jointly, $45,000 for heads of household, and $30,000 for singles and married individuals filing separately.
- Annual benefit limitations for defined benefit plans. As of 2014, the annual benefit limitation for a defined benefit plan is $210,000, up from $205,000 in 2013.
- Annual limits for defined contribution plans. Defined contribution plans, such as SEP IRAs, are now limited to a total of $52,000 (or, typically, a percentage of income, whichever is lower). This is up from $51,000 in 2013. You can find out more about defined contribution plans for freelancers and small business owners here.
What It Means for You
Most of us won’t be affected much by these slight changes in tax law and retirement contribution and income limits. You can still contribute the same amount to your tax-advantaged retirement account, if you were planning to max it out.
However, if you’ve been barely disqualified from writing off IRA contributions or opening a Roth IRA in the past year or two, check the income limits again. If your income hasn’t risen, you may now qualify because the limits have risen just enough to account for inflation.
While these particular IRS changes may not affect you, changes in tax brackets, deductions, credits and other pieces of tax legislation might. Look into our other articles for more information on 2014 tax-related changes of all sorts.Topics: Taxes