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Inflation-shifted Savings Limits and Social Security Benefits

Every year, the U.S. government changes a variety of investment and benefits thresholds based on the inflation rate. But since inflation has been pretty tame, most of the changes have been modest these past ten years.

That changes this coming year.

Start with tax-deferred savings thresholds. The limit for 401(k) or 403(b) contributions will rise from $18,500 to $19,000—and employees 50 and older will continue to be able to contribute an additional $6,000 as a “catch-up” provision. The overall limit for defined-contribution plans increased from $55,000 to $56,000.

Meanwhile, the IRS has raised the contribution limit for IRA accounts—that is, the maximum amount that can be contributed—for the first time in six years, from $5,500 to $6,000. Traditional IRA contributions are tax-free (you get a deduction on your tax return) if you aren’t contributing to an employer-sponsored plan. If you are, then the deduction for making a contribution is phased out starting at $64,000 in income (single), $103,000 (filing jointly), or $10,000 (married filing individually).

Roth contributions are also now capped at $6,000, but your ability to contribute phases out completely at $137,000 of income (single), $203,000 (filing jointly), or, once again, $10,000 (married filing individually).

Also in 2019, Social Security beneficiaries will receive their biggest cost of living adjustment in seven years—up 2.8% from last year’s benefits, which handily beats the 2.0% increase given out last year. In 2019, a retired worker reaching full retirement age would receive a maximum of $2,861 a month—an increase of $73 a month, or $876 a year. On average, Social Security beneficiaries will receive an additional $39 a month.

The age that Social Security defines as “full retirement age” will also increase by two months, to 66 years and six months for people who will turn 62 in 2019. The full retirement age will increase in two-month increments over the next two years until it reaches age 67 for everyone born in 1960 or later.

People paying into the Social Security system will also see an adjustment. Next year, earned income up to $132,900 (up from $128,400) will be subject to the 6.2% Social Security payroll tax—which basically means an increase of $279 for people who earn the maximum. (Income above this amount is exempted from Social Security’s payroll tax—an estimated $1.2 trillion altogether.)

Please Note: This article is used with permission from a newsletter to which KFG subscribes. It is for our clients only and may not be republished.

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