The Internal Revenue Service (IRS) taxes just about every financial transaction. There are some exceptions, often justified by the fact that encouraging taxpayers to partake in the excepted activity is in the country’s best interest. One example: saving for retirement.
In some cases, the government will make changes to these exceptions. The IRS recently announced a set of changes that result in the increase of contribution limits to certain retirement accounts in 2019.
What contribution limits did the government change? The government increased contribution limits from $18,500 to $19,000 for employees that contribute to 401(k), 402 (b) and Thrift Savings Plans. Some 457 plans are also part of this change.
The government also changed contribution limitations to Individual Retirement Arrangements (IRAs). The Secretary of the Treasury increased the contribution limitation from $5,500 to $6,000. The IRS also notes the government did not change the catch-up contribution limit. This remains set at $1,000.
Why did the IRS make the change? Section 415(d) of the Internal Revenue Code allows for the Secretary of the Treasury to adjust these contributions to reflect cost-of-living increases. In this case, the agency states the change is the result of an attempt to reflect “cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019.”
How can I benefit from these changes? These are a few of the changes made by the Secretary of the Treasury that will impact retirement savings in 2019. As such, it is wise to review the full extent of adjustments and update tax planning strategies to reflect these changes.