Retirement Planning | Savings Rules | Scottsdale | Chandler | Arizona

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Tax-saving opportunities continue for retirement planning due to availability of traditional and Roth IRAs and other retirement savings incentives. Opportunities include traditional IRAs, rollovers, and conversions.
Traditional IRAs: Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. For 2018, the annual deductible contribution limit for an IRA is $5,500, and a $1,000 “catch-up” contribution is allowed for taxpayers age 50 or older by the close of the taxable year, making the total limit $6,500 for these individuals.
Individuals who are active participants in an employer pension plan also may make deductible contributions to an IRA, but their contributions are limited depending on their AGI. For 2018, the AGI phase-out range for deductibility of IRA contributions is between $63,000 and $73,000 of modified AGI for single persons (including heads of households), and between $101,000 and $121,000 of modified AGI for married filing jointly. Above these ranges, no deduction is allowed.
In addition, an individual will not be considered an “active participant” in an employer plan simply because the individual’s spouse is an active participant for part of a plan year. Thus, you may be able to take the full deduction for an IRA contribution regardless of whether your spouse is covered by a plan at work, subject to a phase-out if your joint modified AGI is $189,000 to $199,000 ($0-$10,000 if married filing separately) for 2018. Above this range, no deduction is allowed.
IRA Rollovers: For 2018, taxpayers may make only one IRA-to-IRA rollover per year. Direct rollovers from trustee to trustee are not affected. A second attempted rollover will be treated as a withdrawal and taxed at regular rates, plus a possible 10% early withdrawal penalty.
Spousal IRA: If an individual files a joint return and has less compensation than his or her spouse, the IRA contribution is limited to the lesser of $5,500 for 2018 plus age 50 catch-up contributions ($1,000 for 2018), or the total compensation of both spouses reduced by the other spouse’s IRA contributions (traditional and Roth).
Roth IRA: This IRA permits nondeductible contributions of up to $5,500 ($6,500 if making eligible catch-up contribution) for 2018, but no more than an individual’s compensation. Earnings grow tax-free, and distributions are tax-free provided no distributions are made until more than five years after the first contribution and the individual has reached age 59 1/2. Distributions may be made earlier on account of the individual’s disability or death. The maximum contribution is phased out in 2018 for persons with an AGI above certain amounts: $189,000 to $199,000 for married filing jointly, and $120,000 to $135,000 for single taxpayers (including heads of households); and between $0 and $10,000 for married filing separately who lived with the spouse during the year.
Roth IRA Conversion Rule: Funds in a traditional IRA (including SEPs and SIMPLE IRAs), §401(a) qualified retirement plan, §403(b) tax- sheltered annuity, or §457 government plan may be rolled over into a Roth IRA. Such a rollover, however, is treated as a taxable event, and you will pay tax on the amount converted. No penalties will apply if all the requirements for such a transfer are satisfied. If you made a Roth IRA conversion earlier in the tax year, you do not have the option to use recharacterization to undo the conversion. This strategy is not available beginning in 2018. Previously, the strategy could be used for investments that have gone down in value so that if the conversion were accomplished later in the year, taxes owed would be lower.
In addition, for 2018, if the taxpayer’s employer-sponsored §401(k) plan, §403(b) plan, or governmental §457(b) plan has a qualified designated Roth contribution program, a distribution to an employee (or a surviving spouse) from such account under the plan that is not a designated Roth account is permitted to be rolled over into a designated Roth account under the plan for the individual. 401(K) Contribution: The §401(k) elective deferral limit is $18,500 for 2018. If the taxpayer’s § 401(k) plan has been amended to allow for catch-up contributions for 2018 and the taxpayer reaches age 50 by December 31, 2018, an additional $6,000 may be contributed to the §401(k) account, for a total maximum contribution of $24,500 ($18,500 in regular contributions plus $6,000 in catch-up contributions).
SIMPLE Plan Contribution: The SIMPLE plan deferral limit is $12,500 for 2018. If the taxpayer’s SIMPLE plan has been amended to allow for catch-up contributions for 2018 and the taxpayer will be 50 years old by December 31, 2018, an additional $3,000 may be contributed.
Catch-Up Contributions for Other Plans: If the taxpayer will be 50 years old by December 31, 2018, an additional $6,000 can be contributed to a §403(b) plan, SEP, or eligible §457 government plan.
Maximize Retirement Savings: In many cases, employers will require you to set your 2019 retirement contribution levels before January 2019. If you did not elect the maximum 401(k) contribution for 2018, you may be able to increase your amount for the remainder of 2018 to lower your AGI in order to take advantage of some of the tax breaks described above. Maximizing your contribution is generally a good tax-saving move.
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