IRA Contribution Limits in 2018

For the last several years, consumers have benefited from the low rate of inflation, but it hasn't been doing much good for retirement savers trying to put more money aside in their retirement accounts. For the fourth year in a row, the rate of inflation wasn't  high enough to trigger any increases in retirement plan contribution limits for 2017 and just a small increase for workplace retirement plans in 2018 (IRAs remained the same). The Internal Revenue Service (IRS) did increase some of the income thresholds for contribution eligibility.

The maximum IRA contribution limits for both traditional individual retirement accounts (IRAs) and Roth IRAs stayed  stuck at $5,500 in 2017 and 2018. The catch-up contribution was also unchanged at $1,000 for individuals age 50 and older.

The income threshold for deducting IRA contributions changed slightly. If you have a workplace retirement account, you can claim a tax deduction for an IRA contribution if your income doesn't exceed specified annual limits. For 2017, the IRA tax deduction is phased out for individuals and heads of households with a modified adjusted gross income (MAGI) between $62,000 and $72,000. (It's 63,000 and $73,000 for 2018.)

For married couples, the phase-out begins at $99,000 and tops out at $119,000. In 2018, those numbers rise to $101,000 and $121,000.

The income threshold for allowable Roth IRA contributions increased in 2017 and 2018. If you file as single or as the head of a household, your MAGI can range between $118,000 and $133,000 and you will still be eligible to make a Roth IRA contribution. The amount of allowable contributions begins to phase out at $118,000 and is completely disallowed after $133,000. The MAGI range of married couples is $186,000 to $196,000. (For 2018, those figures are $120,000 to $135,000 for singles/heads of household and $189,000 to $199,000 for married couples.)

There are still ways around the Roth IRA contribution limitation. If you make a contribution to a non-deductible IRA, you can convert it to a Roth IRA. The same applies to non-deductible contributions made to a 401(k) plan. Any strategy that involves tax implications should be reviewed by a qualified tax professional.

If you don't have a workplace retirement account and you are married to someone who does, you can claim the full deduction for an IRA contribution if you and your spouse's MAGI doesn't exceed $186,000 in tax year 2017 and $189,000 in 2018. The tax deduction is phased out for incomes between $186,000 and $196,000 for 2017, and $189,000 and $199,000 for 2018. If neither spouse participates in a retirement plan at work, all of your contribiutions are tax deductible.

Many people with low to moderate incomes aren't even aware of this tax credit. A savers tax credit is available to individuals and heads of households who earn up to $31,000 for 2017 and $31,500 for 2018 (up from $30,7500 in 2016), and married couples who earn up to $62,000 for 2017 and  $63,000 in 2018 (up from $61,500 in 2016).

If you contribute to your IRA, 401(k) or any other qualified retirement account, you could earn a credit of 10%, 20% or 50% of up to $2,000 of your contribution (for married couples, that's $2,000 each, or $4,000).

A credit is applied as a dollar-for-dollar reduction of the taxes you owe. Bigger credits are given for lower incomes. A married couple with an AGI below $62,000 could save as much as $400 off their 2017 tax bill for contributing $2,000 to each of their IRAs (the 10% level). If they managed to contribute $4,000 with an income below $37,000, their tax credit would be $2,000 (50% of their contributions).

The contribution limit for SEP IRAs and solo 401(k) plans grew from $53,000 in 2016 to $54,000 for 2017 and $55,000 for 2018. But SIMPLE plans are unchanged since 2015, at $12,500. The catch-up contribution is unchanged at $3,000.

The contribution limits for all workplace retirement plans, including 401(k) plans, 403(b) plans, 457 deferred compensation plans, defined benefit plans and government Thrift Savings Plans all remained unchanged in 2017 at $18,000 but rose to $18,500 for 2018.

As long as the rate of inflation measured by the Consumer Price Index remains low, expect more of the same. Whether that will be the case for 2019 remains to be seen.