If you’re diligently working towards financial freedom, a significant amount of your income is undoubtedly being funneled into retirement accounts. The government has rules pertaining to how much a person can contribute towards retirement accounts, and how much of certain contributions can be used as tax deduction. Since the IRS tend to make adjustments to these limits from year to year, it’s a great idea to stay current with the limits in order to make the best decisions with respect to your retirement contributions. The IRS has just released changes to retirement contribution and tax deduction maximums for 2017.
IRS Tax Deduction Phase-Out
The maximum contribution towards an IRA remains $5,500 for 2017. The nice thing about an IRA is that the 100% amount contributed can be used as a tax deduction if your income level is below a certain threshold and certain conditions are met. Once your income reaches the threshold, the deduction is reduced, or phased-out. Here are the income phase-out levels for different classifications of filers:
If a person is single and covered by a workplace retirement account, the deduction is reduced once a certain income level is met. For 2017, the phase-out income range for single tax payers is $62,000 to $72,000, up from $61,000 to $71,000.
Married Filing Jointly
For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range for 2017 is $99,000 to $119,000, up from $98,000 to $118,000.
If a person who is not covered by a workplace retirement plan, but is married to someone who is covered, the deduction is phased out if the coupleâ€™s income is between $186,000 and $196,000, up from $184,000 and $194,000.
Married Filing Separately
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Roth IRA Contribution Phase-Out
In addition to traditional IRA contributions, people can also contribute to a Roth IRA . The amount a person can contribute to a Roth IRA is dependent upon income level. The income phase-out levels for 2017 are as follows:
- For single taxpayers, the Roth IRA income phase-out range is $118,000 to $133,000, up from $117,000 to $132,000.
- For married couples filing jointly, the income phase-out range is $186,000 to $196,000, up from $184,000 to $194,000.
- The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Contributions limits for 2017 remain unchanged:
- IRA contributions remain capped at $5,500.
- Maximum ontributions to 401(k), 403(b), most 457 plans, and the federal governmentâ€™s Thrift Savings Plan remain at $18,000 for 2017.
- Employees above 50 years of age can contribute an additional $6000 as a â€œcatch-upâ€ contribution in 2017.
For more detailed information regarding changes to retirement account contributions, please reference the IRS website.
How about you, Clever Friends, do you take full advantage of your retirement account contribution limits?
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