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New IRA and Solo 401k Contribution Limits in Effect for 2019

IRA and Solo 401k contribution limits

The IRA and Solo 401k contribution limits are expected to increase for 2019. In this article, we share what participants can expect to contribute for each retirement plan and what an increase in the 2019 contribution limits mean for retirement account holders.

New IRA and Solo 401k contribution limits

With the new year comes new goals, opportunities, and updated annual retirement contribution amounts. New IRA and Solo 401k retirement plan contribution limits were announced last year and went into effect on January 1.

Below, please find a summary of the 2019 maximum annual contribution limits for IRAs and Solo 401(k) plans.

Solo 401k:

2019: Employee Deferrals: $19000 and $25000 if over 50

2018: Employer Contributions: $37,000

2019: TOTAL: $56,000 and $62,000 if over 50

2018: $55,000 and $61,000

Traditional IRA, Roth IRA:

2019: $6000 and $7000 if over 50

2018: $5500 and $6500

SEP IRA:

2019: $56000

2018: $55000

SIMPLE IRA:

2019: $13,000

2018: $12,500

What do Higher 2019 Contribution Limits Mean for You?

The higher 2019 contribution limits means you can put aside more for retirement. This is the first time we’ve seen across-the-board increases for all retirement plan options in several years. Additionally, the more you contribute and the sooner you start allows your savings to increase exponentially.

Which Plan is Right for You?

Most of the plans listed above are for those who are self-employed or own small businesses. First, the Solo 401(k) is perfect for anyone who has self-employed income or those who have an owner-only business. Solo 401(k) plans are only available if you have no other full-time employees (other than a spouse).

Next, the SEP and SIMPLE IRAs are options to those who have a small business that do have full-time employees. They’re great since they are easy to start and administer. Self-employed individuals can also utilize one of these option, however a Solo 401(k) is usually the best option.

Finally, Traditional IRAs and Roth IRAs are available to anyone who has earned income in a given year. These plans are especially important if your employer doesn’t offer a workplace plan, such as a 401(k). The main difference in these plans is that a traditional IRA is funded with pre-tax money (savings are tax-deferred until retirement), while a Roth IRA is funded with after-tax money (distributions are tax-free during retirement).

Future IRA Contribution Limit Increases

Going forward, it is expected that any potential increases in the annual maximum IRA contribution limits could be limited due to recent tax reform legislation that requires the use of chained Consumer Price Index (CPI) for IRA and Health Savings Account (HSA) limits. The chained CPI, like traditional CPI measures, tracks the prices of a basket of goods and services but adjusts for changes in purchases as consumers substitute cheaper products and services for more expensive ones. As a result, the chained CPI usually rises more slowly than the traditional CPI measure.

Chained CPI grows more slowly than the traditional CPI measure which is relevant since any increase in IRA contribution limits would be linked to inflation. In other words, adjustment for inflation impacts the way in which the new tax brackets will rise over time, as well as the maximum contributions you’re allowed to make to IRAs and 401(k)s. Hence, if the formula for evaluating the impact of inflation is limited (chained CPI versus traditional CPI), then the increase in IRA contribution limits could rise more slowly in future years.

Summary

The increase of IRA and Solo 401k contribution limits is always a good thing. You may not always be able to max out your contributions every year, but it’s nice to know that the option is there to do so. After all, doesn’t everyone want to retire as quickly as possible?

If you have any questions about any of these plans and/or limits, please give us a call at 800.472.0646.

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