Anyone whoâ€™s bought groceries, filled their gas tank, or paid insurance premiums recently would probably be surprised to learn that according to Department of Laborâ€™s Consumer Price Index for Urban Consumers (CPI-U), the rate of inflation is relatively flat â€“ only 1.2 percent from September 2012 to September 2013.
Thatâ€™s bad news for people who were hoping to boost their contributions to an IRA, 401(k) plan, or other tax-advantaged retirement savings accounts, since the IRS uses the CPI-Uâ€™s September year-over-year performance to determine whether or not to make cost-of-living adjustments to many of the retirement contributions you and your employer can make in the following year.
Here are highlights of what will and wonâ€™t change in 2014:
Defined contribution plans. The maximum allowable annual contribution you can make to a workplace 401(k), 403(b), 457(b) or federal Thrift Savings plan remains unchanged at $17,500. Keep in mind these additional factors:
- People over 50 can also make an additional $5,500 in catch-up contributions (unchanged from 2013).
- The annual limit for combined employee and employer contributions increased by $1,000 to $52,000.
- Because your plan may limit the percentage of pay you can contribute, your maximum contribution may actually be less. (For example, if the maximum contribution is 10 percent of pay and you earn $60,000, you could only contribute $6,000.)
Individual Retirement Accounts (IRAs). The maximum annual contribution to IRAs remains the same at $5,500 (plus an additional $1,000 if 50 or older â€“ also unchanged from 2013). Maximum contributions to traditional IRAs are not impacted by personal income, but if your modified adjusted gross income (AGI) exceeds certain limits, the maximum amount you can contribute to a Roth IRA gradually phases out:
- For singles/heads of households the phase-out AGI range is $114,000 to $129,000 (increased from 2013â€™s $112,000 to $127,000 range). Above $129,000, you cannot contribute to a Roth.
- For married couples filing jointly, the range is $181,000 to $191,000 (up from $178,000 to $188,000).
- For married people filing a separate return who are covered by a workplace retirement plan, the phase-out range remains at $0 to $10,000.
Keep in mind these rules for deducting traditional IRA contributions on your federal tax return:
- If youâ€™re single, a head of household, a qualifying widow(er) or married and neither spouse is covered by an employer-provided retirement plan, you can deduct the full IRA contribution, regardless of income.
- If you are covered by an employer plan and are single/head of household, the tax deduction phases out for AGI between $60,000 and $70,000 (up from $59,000 to $69,000 in 2013); if married and filing jointly, the phase-out range is $96,000 to $116,000 (up from $95,000 to $115,000).
- If youâ€™re married and arenâ€™t covered by an employer plan but your spouse is, the IRA deduction is phased out if your combined AGI is between $181,000 and $191,000 (up from $178,000 to $188,000).
- For more details, read IRS Publication 590.
Defined benefit plan limits. The limit on the maximum annual benefit you can receive from a defined benefit plan (a traditional pension) increases by $5,000 to $210,000.
SIMPLE plans. The employee contribution limit for these small-employer plans, which resemble 401(k) plans, remains unchanged at $12,000. Those over 50 can make up to $2,500 in catch-up contributions.
Simplified Employee Pension (SEP) IRA plans. In these plans, your employer (or you, if self-employed) contributes directly to an IRA on your behalf. The annual minimum wage for participation remains unchanged at $550 and the maximum contribution allowed is a percentage of pay (25 percent for companies; 20 percent if self-employed) up to an annual pay limit of $260,000 (a $5,000 increase from 2013).
Retirement Saverâ€™ Tax Credit. As an incentive to help low- and moderate-income workers save for retirement through an IRA or company-sponsored plan, many are eligible for a Retirement Saversâ€™ Tax Credit of up to $1,000 ($2,000 if filing jointly). This credit lowers your tax bill, dollar for dollar, in addition to any other tax deduction you already receive for your contribution.
Qualifying income ceiling limits for the Saversâ€™ Tax Credit increased in 2014 to $60,000 for joint filers, $45,000 for heads of household, and $30,000 for singles or married persons filing separately. Consult IRS Form 8880 for more information.
A few other noteworthy tax-related numbers that change in 2014 include:
- A 1.5 percent cost-of-living adjustment has been added to 2014 Social Security benefits.
- The Social Security taxable wage base is increasing to $117,000, up from $113,700 in 2013. This is the maximum income amount subject to Social Security taxes.
- The personal exemption amount increases by $50 to $3,950 in 2014.
- The federal estate tax exemption for estates of those who die in 2014 increases to $5.34 million, up from $5.25 million in 2013.
- The gift exemption amount remains the same at $14,000.
- The amount used to reduce the net unearned income reported on a childâ€™s tax return subject to the so-called â€œkiddie taxâ€ remains the same at $1,000.
ThisÂ article is intended to provide general information and should not be considered legal, taxÂ or financial advice. It’sÂ always a good idea to consult a legal, taxÂ or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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Jason Alderman is Senior Director, Global Financial Education, with Visa, Inc. Â Â Â Â Â Â
ThisÂ article is intended to provide general information and should not be considered legal, taxÂ or financial advice. Itâ€™sÂ always a good idea to consult a legal, taxÂ or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.