Every year, it’s a good idea to review changes to your retirement plan contribution limits and laws.
After all, contribution limits and laws change annually, so it’s a good idea to stay on top of the differences from year to year that can benefit you annually, as well as long-term.
This year will see a limited number of changes to retirement plan contribution and income limits. To make the most informed retirement and investment decisions this year, get informed about what’s changing.
Here’s the checklist you should go through to see what’s staying the same or changing across retirement plan rules and limits for 2016. (Note: Betterment is not a tax advisor, and this should not be considered tax advice. You should contact a tax professional to discuss your individual situation.)
1. Not Changing: Employer Plan Contribution Limits
This year, taxpayers will be able to contribute up to $18,000 to their 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. The catch-up contribution limit will remain at $6,000 for a total contribution limit of $24,000 for employees 50 years old and older.
2. Not Changing: IRA Contribution Limits
The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals 50 years old and over is not subject to an annual cost-of-living adjustment, and remains $1,000.
3. Increase: Income limits for Deductible IRA Contributions
The deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified adjusted gross incomes (AGI) within a certain range.
Income limits for deductible contributions to IRAs vary based on whether the taxpayer and/or the spouse are eligible to participate in an employer-sponsored retirement plan.
Single/Head of Household
For singles and heads of household who are covered by a workplace retirement plan, the income phase-out range remains unchanged at $61,000 to $71,000.
The income limit for taking a full deduction for your contribution to a traditional IRA when you are not covered in a workplace retirement will go up by $1,000 in 2016 to $117,000.
The deduction completely phases out when your income goes above $132,000, also up by $1,000 in 2016.
For married couples filing jointly, if the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range remains unchanged at $98,000 to $118,000.
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.
The income limit for taking a full deduction for your contribution to a traditional IRA when you are not covered in a workplace retirement but your spouse is, will go up by $1,000 in 2016 to $184,000 for married filing jointly.
The deduction completely phases out when your income goes above $194,000, up by $1,000 in 2016.
For more information and guidance regarding income limits for deductible IRA contributions, consult the expanded IRS rules.
4. Increase: Income Limits for Roth IRA Contributions
For singles and heads of household, the income phase-out range is $117,000 to $132,000, an increase of $1,000 for 2016.
The AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000.
The AGI phase-out range for a married individual filing a separate return (but lived with his or her spouse at any time during the year) who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
You can have both a traditional and Roth IRA, but you can only contribute a maximum of $5,500 (or $6,500 if you’re 50 or older) across both accounts in 2016. This limit is unchanged from 2015. For more information, read the IRS guidelines.
5. Increase: Income Limits for Saver’s Credit
The AGI limit for the saver’s credit for low- and moderate-income workers increases in 2016 to:
- $30,750 for married individuals filing separately, and for singles, up from $30,500
- $46,125 for heads of household, up from $45,750
- $61,500 for married couples filing jointly, up from $61,000
Change In Contribution Limits
|Limit on employee contributions to 401(k), 403b, or 457 plan||$18,000||$18,000||None|
|Limit on age 50+ catchup contributions to 401(k), 403b, or 457 plan||$6,000||$6,000||None|
|Traditional and Roth IRA contribution limit||$5,500||$5,500||None|
|Traditional and Roth IRA age 50+ catchup contribution limit||$1,000||$1,000||None|
|SIMPLE 401(k) or SIMPLE IRA contributions limit||$12,500||$12,500||None|
|SIMPLE 401(k) or SIMPLE IRA age 50+ catchup contributions limit||$3,000||$3,000||None|
|Maximum annual additions to all defined contribution plans by the same employer||$53,000||$53,000||None|
|Highly Compensated Employee definition||$120,000||$120,000||None|
|Deductible IRA income limit, active participant in workplace retirement plan, single||$61,000 – $71,000||$61,000 – $71,000||None|
|Deductible IRA income limit, active participant in workplace retirement plan, married filing jointly||$98,000 – $118,000||$98,000 – $118,000||None|
|Deductible IRA income limit, spouse is active participant in workplace retirement plan||$183,000 – $193,000||$184,000 – $194,000||$1,000|
|Roth IRA income limit, single||$116,000 – $131,000||$117,000 – $132,000||$1,000|
|Roth IRA income limit, married filing jointly||$183,000 – $193,000||$184,000 – $194,000||$1,000|
As a Betterment investor, Betterment’s RetireGuide, which is our retirement planning tool, already supports the 2016 contribution rules and limits.
To get personalized advice on which employer plan or IRA accounts you qualify for and should use to help optimize your taxes, check out the How to Save section of RetireGuide.
If you’d like to preview a simplified version of RetireGuide’s account recommendations, try this calculator.
More from Betterment:
- IRA Calculator: Which Is the Right Type for Your Savings Goals?
- Dip into Your Taxable Account to Max Out Your IRA
- RetireGuide: Now with Synced Accounts and Social Security Upgrades
Betterment is not a tax advisor. This information is for informational use only and should not be considered tax advice. You should consult a tax professional to discuss your situation.