The Internal Revenue Service (IRS) recently released cost of living (COLA) changes for 2018. From 401(k) plans to individual retirement accounts to Social Security, the federal government has been busy in recent weeks adjusting numbers for 2018. Whether you’re an employee or business owner, senior management or nonexempt staff, these changes may affect how you approach retirement in the coming months and years.
401(k) elective deferrals:
Employees who participate in 401(k)’s, 403(b)’s and certain 457 plans can electively defer up to $18,500 of compensation in 2018, up from $18,000 in 2017.
Individual Retirement accounts:
Eligible individuals will be able to contribute up to $5,500 to their IRA in 2018, unchanged from 2017. The deduction phase out at certain AGI levels for individuals covered by employer plans will increase as well as AGI levels for allowable Roth contributions, depending on filing status.
Eligible individuals age 50 and above may continue to make contributions to IRA’s, 401(k)’s and other savings arrangements in 2018. The amounts of $1,000 for IRA’s and $6,000 for 401(k)’s, SEP’s, 457’s, and 403(b)’s remain unchanged for 2018.
Annual compensation limits:
The maximum annual compensation counted for an eligible employee participating in 401(k)’s, SEP and certain other qualified plans will increase to $275,000 in 2018, up from $270,000 in 2017. The total amount that can be contributed will increase from $54,000 to $55,000.
Social security and Supplemental Security Income (SSI):
Social Security and SSI beneficiaries will receive a 2% increase in their benefits in 2018 based on the increase in the Consumer Price Index for the year ending September 30, 2017. However, beneficiaries having the Medicare Part B premiums deducted from their benefits may see an increase in the amount of monthly premiums by the lesser of $3.00 or their COLA increase in monthly Social Security benefit.
Other Social Security related changes for employees and employers:
The maximum taxable earnings for Social Security taxes will increase to $128,700 in 2018, up from $127,200 for 2017. The Social Security withholdings will continue at 6.2% on the maximum earnings and the Medicare tax withholding will continue at 1.45% on all compensation.
In 2018 individuals under full retirement age who have filed for Social Security benefits can earn $17,040 per year or $1,420 per month before $1 in benefit will be withheld for every $2 of earnings above these limits. In the year the individual reaches full retirement age, they may earn $3,780 per month during the months prior to attaining full retirement age
Please contact us if you have any questions on these changes or the new phase out levels.