New contribution limits and other changes are coming in 2015 to 401(k) and its cousins in the world of retirement savings plans.
In the 21st Century, 401 (k) plans, Individual Retirement Accounts (IRA), and other approved retirement vehicles have become the rule while extinction beckons for historically prominent pension plans
Defined-benefit pensions have pretty much disappeared in the private sector and today only exist to a significant degree for government employees. However, that, too, is changing due to the ever-increasing cost to taxpayers of funding retirement programs.
In 2015, there are new ways – and new requirements – on how, and how much, you can save in various retirement plans.
An increase in retirement plan contribution limits:
Contribution limits grow by $500 in 2015, to $18,000, for 401(k); many 457 plans; 403(b); and the Thrift Savings plan (a defined contribution retirement plan for federal government employees). Also being bumped $500, to $6,000, is the “catch-up” provision for employees over age 50.
Five years ago the maximum 401(k) contribution was $16,500. Thus, the number is growing, but not rapidly.
IRA contribution limits don’t change in 2015, remaining at $5,500, and employees over age 50 can add an additional $1,000.
myRa debuts:
Created for people whose employers don’t offer retirement account plans, the myRA enables employees to participate by contributing as little as $25 to enter the program, adding as little as $5 per paycheck.
Employers make no matching contributions. Investment growth and withdrawals are tax-free.
The myRa program is available to Individuals earning up to $129,000 and $191,000 for a couple. The maximum annual contribution is $5,500 for someone under age 50. The over-50 limit is $6,500.
When the $15,000 level of employee contributions is reached, the myRa participant will have to roll it over into a private-sector retirement account.
IRA tax deductions and higher incomes
If you have an IRA through your employer, your tax deductions (depending on your income) may be disappearing.
This is true in 2015 for individuals with adjusted gross incomes of between $61,000 and $71,000 and couples earning between $98,000 and $118,000. These limits are just slightly higher than 2014.
If you don’t have a retirement plan through your employer, but your spouse does, the IRA tax deduction is lost if your combined 2015 income is between $183,000 and $193,000.
Employer 401(k) plans and “highly compensated” employees
If you are classified as a “highly compensated” employee, your contribution limits may be changing in 2015. The IRS defines “highly compensated” employees as someone who:
“Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or“
"For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2013 or 2014; $120,000 if the preceding year is 2015), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.”
Anyone included in the “highly compensated” range should, right away, contact your employer to examine your options in light of decisions your employer may make.
There are many other changes for 2015 affecting retirement plans. These are important whether you’re early or late in the retirement-planning game. Contact your company’s human resources department, your accountant, or your financial advisor to learn how the 2015 retirement plan changes might – or will – affect you.
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