The IRS has announced some exciting news for everyone who’s saving for retirement; in 2018 they’re increasing the contribution limit for 401(k), 403(b), most 457 plans, and the Thrift Savings Plan. This is a big deal, especially in light of America’s retirement crisis.
America’s Retirement Saving Crisis
There’s no easy way to say this; Americans are in a big retirement jam. The numbers are pretty bleak according to a variety of sources.
-A 2016 GoBankingRates study showed that 69% of Americans have less than $1000 in savings- including retirement savings
–Bloomberg reported this year that only a 1/3 of working Americans are saving money in an employer-sponsored or tax-deferred retirement account. What’s more, only about 14% of employers in the US offer those kinds of plans, which leaves a huge slice of Americans without access to that retirement account.
–Not saving for retirement sooner in their careers is American’s number one money regret.
–50% of Americans have less than $25,000 saved specifically for retirement. (This number includes those who are nearing retirement age.)
Overview of The 2018 Changes
With such a bleak retirement savings picture in front of us, it’s important for everyone to step up their retirement contributions. This increase in contributions limits is a good place to start. Let’s look at some of the details of the change.
-The contribution limit for 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will increase from $18,000 to $18,500.
-The income ranges for determining eligibility to make deductible contributions to Traditional IRA and Roth IRAs, and to claim the saver’s credit are all increasing for 2018.
-If you are married and you or your spouse had access to a retirement plan from your employer, your deductions can be reduced or phased out. This depends on your income and filing status. Take a look at the phase out info here:
- “Single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $189,000 and $199,000, up from $186,000 and $196,000.
- A married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.”
-The Roth IRA income range for phase-outs will be $120,000-$135,000 in 2018. That’s up from $118,000-$133,000.
-The 2018 income limit for the Saver’s Credit for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000; $47,250 for heads of household, up from $46,500; and $31,500 for singles and married individuals filing separately, up from $31,000.
Challenges In Making Bigger Retirement Contributions
This is just an overview, but this sums up the biggest changes coming next year. What’s exciting is that the retirement contribution limit is increasing at all. This gives all working Americans a helpful boost in saving a bit more for their golden years.
What are the challenges that we’re up against when it comes to making bigger retirement contributions? The answer is a little complex.
Like we said above, many Americans don’t have access to an employer sponsored retirement plan. That means they need to go out and open their own. Having that added barrier means many people don’t do that- they simply forget, or don’t have stamps to mail in the paperwork to a brokerage firm.
Many Americans live paycheck to paycheck. There’s just not enough money in their life to be able to save for retirement.
Finally, it’s hard to save for a future that seems so far away. When you’re 25 or 30, retirement is at least 35 years away. Humans have a hard time planning for something that far away. We’re much more likely to save for vacation next year than for retirement 35 or 40 years away.
If you have an employer sponsored plan, try and increase your contributions by 1-10% in 2018. A little goes a long way! If you don’t have access to one of those plans, you can open an IRA account online with most brokerage firms. Try Vanguard or TD Ameritrade!
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Kara Perez is the original founder of From Frugal To Free. She is a money expert, speaker and founder of Bravely Go, a feminist financial education company. Her work has been featured on NPR, Business Insider, Forbes, and Elite Daily.