Financial Advisor Insights

IRS Sets New Limits for 2017

The IRS has released the 2017 contribution limits and other guidelines in preparation for the New Year. Although many of the most common thresholds are unchanged, there are some to make note of.

Maximum Employee Contributions to Defined Contribution Plans: Unchanged.

For employees with 401(k), 403(b), most 457 plans, or the federal government’s Thrift Savings Plan, the contribution limit for 2017 remains unchanged at $18,000. 

Maximum Employer After-Tax Additions to Defined Contribution Plans: Changed.

The annual additions limit for employers has increased $1,000 to $54,000 in 2017.

Annual Catch-up Contributions for Employees Over 50: Unchanged.

Workers over 50 years old with defined contribution plans (401(k), 403(b), most 457 plans, or the federal government’s Thrift Savings Plan) can expect a level catch-up contribution limit of $6,000 in 2017.

Self-employed and Small Business Owners: SEP IRA and Solo 401(k) Limits: Changed.

The total annual contribution limit for both SEP IRAs and Solo 401(k)s has increased $1,000 to $54,000 in 2017. However, the amount that can actually be added each year is subject to an additional limitation: a percentage of W-2 earnings or net self-employment income. In 2017, the compensation limits for these calculations increased $5,000 to $270,000.

SEP IRAs are funded solely by employer contributions. Individual 401(k) plans can be funded by a business owner in two ways: as the employee and the employer, subject to the maximum annual additions limit. Like a traditional 401(k) plan, maximum employee contributions in 2017 remains capped at $18,000 for the solo 401(k). As previously mentioned, the employer component is subject to limitations based on earnings. Learn more about retirement planning for small business owners. 

SIMPLE IRA and SIMPLE 401(k) Contributions: Unchanged (Mostly)

Assuming the employee does not participate in another retirement plan, the maximum contribution to a SIMPLE IRA or SIMPLE 401(k) plan remain unchanged in 2017 at $12,500 and $3,000 for catch-up contributions for those over age 50. An employer may either make matching contributions or nonelective contributions to the plan. If the employer makes nonelective contributions, the covered compensation limit has increased to $270,000 in 2017.

Traditional IRAs: Some Change 

The annual contribution limit for traditional IRAs will not change in 2017 and will remain at $5,500 with an additional $1,000 catch-up contribution for those over age 50. Just about any individual with earned income under age 70 1/2 can contribute to a traditional IRA, however their additions may not be deductible. In 2017 the income phase-out bands that determine whether all (or a portion of) contributions are deductible will increase slightly. Learn more about traditional vs Roth IRAs.

If you're covered by a retirement plan at work:

                                            Tax Filing Status & Modified Adjusted Gross Income Limits

Deduction Single Married filing jointly
Full $62,000 or less $99,000 or less
Partial; deduction begins to phase out More than $62,000 and less than $72,000 More than $99,000 and less than $119,000
Non-deductible  Above $72,000 Above $119,000

 

If you're NOT covered by a retirement plan at work:

                                          Tax Filing Status & Modified Adjusted Gross Income Limits

Deduction Single and married filing jointly (neither spouse covered) Married filing jointly - one spouse covered
Full Any $186,000 or less
Partial; deduction begins to phase out   More than $186,000 and less than $196,000
Non-deductible    Above $196,000

 

Roth IRAs: Some Change

Like the traditional IRA, the contribution limits remain unchanged for 2017. However, the income phase-out limits will increase slightly. The phase-out range for single filers will be between $118,000 - $133,000 and for married couples filing jointly $186,000 - $196,000. Learn more about traditional vs Roth IRAs.

Health Savings Accounts (HSAs): Little Change

Health savings accounts will see little change in 2017. To qualify for a HSA you must have a high deductible health plan (HDHP). To be classified as a HDHP, the plan must have a minimum annual deductible of $1,300 for individual plans and $2,600 for family plans, the same as 2016. In 2017, qualified participants may make pre-tax contributions of up to $3,400 for individual plans (up $50 from 2016) and $6,750 for family plans (same as 2016). Learn more about HSAs.

Flexible Spending Accounts (FSAs): Little Change

Employer-sponsored FSAs may have two components: a health FSA and/or a dependent care FSA. In 2017, annual contributions to a health FSA will increase $50 to $2,600. The dependent care FSA remains unchanged at $5,000 for single parents or married couples filing jointly. Learn more about FSAs.

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