If you’re working on your retirement savings strategy for 2014 you need to know exactly how much you can sock away. The Internal Revenue Service routinely adjusts the annual contribution limits for different types of retirement plans, including 401(k)s and IRAs. For 2014, most limits will stay the same. But there are a few key changes that take effect. Here’s a rundown of what you can expect if you’re looking to max out your retirement plan this year.
Defined Contribution Plans
A defined contribution plan is any plan that allows you to chip in money towards your own retirement. Your employer can also make contributions but they’re not required to. Defined contribution plans include 401(k)s, 403(b) accounts, 457 accounts and the federal Thrift Savings Plan.
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For 2014, the limit on contributions for these types of plans remains unchanged at $17,500. If you’re over age 50 you’re allowed to kick in an extra $5,500 in catch-up contributions. The total limit for what you and your employer can put in increases by $1,000 to $52,000.
It’s worth noting that these limits only apply if your plan doesn’t limit the percentage of your income you can defer. For example, if your employer caps your contributions at 10% of your salary and you make $100,000, you’ll only be able to put in $10,000 instead of $17,500.
Defined Benefit Plans
Defined benefit plans may allow employee contributions but they’re typically funded solely by the employer. This type of retirement plan is designed to pay you a specific amount of money once you retire. Your total benefit amount is calculated based on what your employer has put in, your salary at retirement and your years of service.
For 2014, the total annual benefit you’re entitled to is the lesser of 100% of your average compensation for your three highest consecutive calendar years or $210,000. That’s an increase of $5,000 over last year.
Individual Retirement Accounts
The contribution limits for traditional and Roth IRAs remains at $5,500 for 2014 and so does the $1,000 catch-up contribution limit for people who are 50 or over. While these limits are unchanged, the IRS did make some adjustments to the income phase-out limits for Roth IRA contributions.
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The adjusted gross income phaseout range for single filers and those filing head of household is $114,000 to $129,000 for this year. That’s up $2,000 from last year. If your AGI is more than $129,000 you won’t be able to put money into a Roth.
The range for married couples filing jointly is $181,000 to $191,000, an increase of $3,000 over 2013 limits. If you’re married but file separately and are covered by an employer’s retirement plan, the phase-out range is still $0 to $10,000.
The IRS also bumped up the AGI limit for those who plan to deduct traditional IRA contributions. Single filers who are covered by an employer’s plan will see their deduction phased out if their AGI is between $60,000 and $70,000. For married couples filing jointly, the phase-out range is $96,000 to $116,000. The new limits represent a $1,000 increase over last year’s limits.
In the case of married couples where only one spouse is covered by an employer’s plan, the deduction is phased out when your combined AGI ranges from $181,000 to $191,000. For 2013, the phase-out limit was $178,000 to $188,000.
SIMPLE and SEP IRAs
If you work for a smaller company of you’re self-employed, you may be able to contribute to a SIMPLE or SEP IRA. Small business owners can use a SIMPLE IRA to contribute money towards retirement for themselves or their employees. Employees can also contribute to the plan through salary deferrals.
An SEP IRA or simplified employee pension allows employers to contribute directly to an IRA on behalf of their employees. You can also set up this type of retirement account if you’re self-employed.
The contribution limits for SIMPLE plans stays at $12,000 for 2014, with an extra $2,500 in catch-up contributions allowed for those over age 50. If you’re enrolled in an SEP IRA, the total amount you and your employer can chip in increases to $52,000 or 25% of your total compensation, whichever is less.
Retirement Saver’s Credit
If you’re planning to stash some cash in a retirement plan this year you may be able to qualify for a valuable tax credit. The Retirement Savers’ Tax Credit is worth up to $1,000 for single filers and $2,000 for joint filers who contribute to an IRA or an employer-sponsored plan and fall within certain income limits.
For 2014, the IRS is bumping up the income phase-out limit for low- and moderate-income taxpayers. Single filers and married couples filing separately will be eligible for the credit with an AGI of $30,000 or less. Those filing head of household will qualify if their AGI is $45,000 or less and the limit goes up to $60,000 for married couples filing jointly.
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When it comes to your retirement you can’t afford to miss out on an opportunity to save. Understanding what the contribution and income limits are can ensure that you get the most bang for your buck.
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