On October 21st, the IRS announced the cost of living adjustments applicable to the various retirement plan limitations for 2016. Unfortunately, the bulk of the retirement savings limits will not increase from 2015.
No Increases for 2016
Most working professionals have access to a 401(k) plan or a 403(b) plan at work. Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred. Like 2015, you can contribute up to $18,000 into a 401(k) or 403(b) plan through salary deferrals in 2016.
Anyone 50 or older by December 31, 2016 can contribute an extra $6,000 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $24,000. That is the same as what was allowed during 2015.
Many smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE’s work just like 401(k) plans, which means it’s up to you to fund the bulk of this retirement savings account through salary deferrals. For 2016, the maximum contribution into your SIMPLE remains at $12,500. Anyone 50 or older by December 31st can sock away an additional $3,000 in 2016, for a total annual contribution of $15,500, unchanged from 2015.
And if you are self-employed, you can contribute up to 20% of your net self-employment income into a SEP IRA. The maximum contribution into your SEP IRA for 2016 remains the same at $53,000.
Re-Set Your 2016 Budget
Most people won’t be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. With 2015 winding down, now’s the time to start thinking about resetting your monthly retirement savings goals for 2016.
2016 Maximum Retirement Account Contributions
Under the Age of 50:
|401(k) or 403(b)||$18,000
|IRA or Roth IRA||$5,500
50 or Older by Dec. 31st:
|401(k) or 403(b)||$24,000
|Solo 401(k)||$59,000 or
|IRA or Roth IRA||$6,500