401k, IRA and Roth IRA Contribution, Eligiblity, Income and Tax Deduction Limits
This page contains a summary of the contribution levels, income limits and eligibility rules for popular tax-advantaged retirement plans. Links to detailed articles and additional resources are also provided. All data provided is for the most recent tax years, unless noted. I encourage you to subscribe (free) via Email or RSS to get the latest retirement plan updates.
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|401(k) and 403(b) Plans||Traditional IRA Plans||Roth IRA Plans||SEP IRA Plans|
|Simple IRA Plans||Withdrawal Ages||Catch-up Contributions||Best IRA Brokers|
Employer Sponsored 401(k) and 403(b) Plans
Every year 401(k) standard contribution limits, which also applies to 403b, 457 plans, and the federal government’s Thrift Savings Plan, are released by the IRS. These figures are closely watched by millions of Americans who rely on these tax-advantaged savings for their retirement savings. The limits are even more closely watched by those in the financial industry given that even marginal increases in these limits can result in billions of dollars in additional retirement savings. Limits are reviewed every year based on final inflation figures per the latest cost of living adjustment (COLA) figures. Sometimes they go up but of late have tended to also stay the same year over year.
In addition to the limit on elective deferrals shown in the table below, annual employer and employee contributions to all of your retirement accounts may not exceed the lesser of 100% of your compensation or the IRS prescribed limit.
Your annual contribution limit is the combined total maximum contribution that you can make each year to ALL 401k plans in which you participate, including standard 401k plans and Roth 401k plans— and is the lower of: (1) the maximum percentage contribution limit allowed under each of your employers’ plans, or (2) the dollar limits shown in the table above. For example, if your employer’s 401k plan allows you to contribute up to a maximum of 10% of your salary, and you earn $50,000, your maximum contribution limit is $5,000, not the $17,500 (2014) contribution limit that applies only to higher-paid employees.
Additional total limits. In addition to the limit on elective deferrals shown in the table above, annual contributions to all of your accounts may not exceed the lesser of 100% of your compensation. Further, the compensation limitation that can be taken into account when determining employer and employee contributions is $265,000 for 2015 vs. $260,000 for 2014. [Get more details]
Maximum Employer Contributions. Matching 401K or 403b contributions made by your employer are NOT counted toward your annual 401k contribution limits (elective deferrals), $17,500 in 2014. Even if you contribute the maximum amount each year, your employer’s matching contributions are in addition to these 401k limits. Your employer’s 401K maximum contribution limit in 2014 is $34,500 ($52,000 – $17,500) or 100% of your salary, whichever is the smaller amount. Though most employers rarely give anywhere near the maximum, with most generally matching 3% to 6% of employee contributions.
Catch-up contributions. If you are age 50 or over at the end of the calendar year, you are permitted to make additional, “catch-up”, elective deferral contributions. These catch-up contributions are not subject to the annual general limits that apply to 401k plans. The catch-up contribution you can make for a year cannot exceed the lesser of the annual catch-up contribution limit, or the excess of your compensation over the elective deferrals that are not catch-up contributions.
Roth 401k Plans – A number of employers are now offering a Roth option in addition to their traditional 401K plan. Roth 401k plans have the same tax considerations and benefits as the Roth IRA plan described below – i.e contributions are after tax, but withdrawals/investment earnings are tax free after retirement age; but allow you to contribute up to the much higher 401k annual plan limits shown in the table above. Note that the combined annual limit applies to both plans. So while you can divide your contributions across a traditional 401k and a Roth 401k, the combined contribution across both plans cannot exceed the IRS annual maximum.
Their are also no income restrictions for Roth 401K plan contributions as their for traditional Roth IRA plans. Another benefit of the Roth 401k is that you can roll the account over to a Roth IRA and avoid the minimum distribution requirement (begins for retirees at 70 1/2.)
Traditional IRA Plans
An IRA (individual retirement account) is your personal savings plan for retirement, offering tax advantages and growth that compounds over time. Unlike employer sponsored 401k plans, where the administration is taken care of by the company, you are responsible for the opening and ongoing management of your IRA account. You can also rollover funds between the different IRA account types as your financial, employment or tax situation changes.
There are 3 things you need to consider when determining if you can make IRA contributions. The first is whether you (or your spouse if applicable) already contribute to an employer sponsored retirement account, like a 401k or 403b plan (discussed above). Secondly you need to see what you can contribute based on your Modified Adjusted Gross Income (MAGI). Finally you need to determine how much you can contribute based on your filing status and age.
For workers already covered by an employer sponsored retirement plan (401k, 403b), contributions to a self-managed IRA plan are only tax deductible if their adjusted gross income (AGI) is within the limits shown in the table below. IF you are below the income threshold range then the entire contribution (up to maximum limit) is tax deductible. If your income is in between the threshold range then only a partial amount of the contribution is deductible. For income levels above the threshold range then none of the contribution is deductible.
If you are married and not covered by an employer sponsored plan BUT your spouse has an employer sponsored plan then you can still contribute to an IRA plan. The IRS has provided higher income limit thresholds for claiming a tax deduction on contributions to accomodate this situation. You can see this in the “(Married and Spouse has Employer Plan) ” income threshold line within the table below.
There are no contribution income limits and your IRA tax deduction is allowed in full if you (and your spouse, if you are married) aren’t covered by a retirement plan at work.
|2016||(Single and have Employer Plan) - $61,00 to $71,000
(Married and have Employer Plan) - $98,000 to $118,00
(Married Filing Separately and have Employer Plan) - $0 to $10,000
(Married and Spouse has Employer Plan) - $184,000 to $194,000
|2015||(Single and have Employer Plan) - $61,00 to $71,000
(Married and have Employer Plan) - $98,000 to $118,00
(Married Filing Separately and have Employer Plan) - $0 to $10,000
(Married and Spouse has Employer Plan) - $183,000 to $193,000
|2014||(S) $60,00 to $70,000
(M) $96,000 to $116,00
(M&S ) $181,000 to $191,000
|2013||(S) $59,00 to $69,000
(M) $94,000 to $114,00
(M&S) $177,000 to $188,000
|2012||(S) $58,00 to $68,000
(M) $92,000 to $112,00
(M&S) $173,000 to $183,000
Get more details on IRA Plans including:
- Savers Tax Credit To Offset IRA and 401(k) Retirement Plan Contributions,
- Contributing to an IRA and Roth IRA if You Already Have a 401K
- Traditional IRA versus Roth IRA
Roth IRA Plans
Roth IRA annual contribution limits have remained unchanged for several years, but income (AGI) increased moderately in line with inflation. The AGI increases mean more people are eligible to open a Roth IRA account and take advantage of the post-retirement tax benefits.
Unlike 401(k) and Traditional IRA plans, you cannot deduct contributions to a Roth IRA from your taxable income. But this is offset by the fact that gains and distributions are tax-free after you reach the qualified retirement age (59½). This is great for people who think that they will be in a higher taxable income bracket and/or that tax rates will be higher during their retirement years. There are however much more stricter limitations to contributing to a Roth IRA account based on your filing status, other employer retirement plan contributions and overall income as shown in the table below.
If your income is above the specified range you will not be eligible to open a Roth IRA account (if you do, you will face a penalty). For incomes in between the threshold ranges you can only make a partial contribution to a Roth IRA account. For incomes below the threshold range the maximum contribution can be made.
Single Filer Phase Out Range Married, Joint Filer Phase Out Range Married, Filing Separate Phase Out Range
2017 (FCST) $5,500 ($6,500 if 50 or older) $118,000–$133,000 $185,000–$195,000 $0–$10,000
2016 $5,500 ($6,500 if 50 or older) $117,000–$132,000 $184,000–$194,000 $0–$10,000
2015 $5,500 ($6,500 if 50 or older) $116,000–$131,000 $183,000–$193,000 $0–$10,000
A Roth IRA also has the following benefits and constraints that you need to be aware of:
- To avoid penalties and receive qualified tax free distributions from your Roth IRA account must meet ALL the following conditions:
- Funds (via contributions) must have been in your account for at least 5-years, and
- Distributions from the Roth IRA account are made on or after the date you reach age 59½ or made because you become permanently disabled
- You can make contributions to your Roth IRA after you reach age 70 ½, unlike traditional IRA plans
- You can also take out up to $10,000 of your contributions to a Roth IRA, without penalty, for a first time home purchase
- You can leave funds in your Roth IRA account as long as you live. Unlike traditional IRA and 401(k) plans there is no required minimum distribution. This makes a Roth IRA a very effective inheritance vehicle because you may potentially reduce or eliminate the taxes your beneficiaries will have to pay after inheriting your estate
- The retirement account must be designated as a Roth IRA when it is set up
SEP IRA Plans
A Simplified Employee Pension (SEP) IRA plan provides self employed or small business owners with a few staff a simplified method to make contributions toward their employees’ retirement and, if self-employed, their own retirement. Like a traditional IRA plan, contributions to a SEP IRA are generally 100% tax deductible and investment earnings in a SEP IRA grow taxed deferred. Withdrawals after age 59 1/2 are taxed as ordinary income. Withdrawals prior to age 59 1/2 may incur a 10% IRS penalty as well as income taxes.
A SEP is set up by an employer – including a self-employed person who is both the employee and employer in this situation – and permits the employer (not the employee) to make tax deductible contributions to the SEP IRA accounts of eligible employees. An eligible employee for a SEP IRA is one who meets the following requirements:
* attained age 21;
* has worked for the employer in at least 3 of the last 5 years;
* has received the annual minimum compensation amount (see table below) over the last two years from the employer for each year
The table below shows the SEP contribution limits over the last few years along with some other key eligibility limits.
|SEP Employer Contribution Limit||$53,000 or 25% of compensation||$53,000 or 25% of compensation||$52,000 or 25% of compensation||$51,000 or 25% of compensation|
|SEP minimum compensation||$600||$600||$550||$550|
|SEP annual compensation limit||$265,000||$265,000||$260,000||$255,000|
Contributions must be made in cash (no stock) and you have up to April 15, to contribute for the past year’s SEP IRA. A SEP provides high maximum contribution limits and relatively low setup cost, but an employer sponsored Individual 401k may allow a greater contribution at the same income level.
You can contribute concurrently to both a 401(k) and SEP IRA. However each contribution is treated separately, up to the 401K annual limit and overall maximum contribution amount listed above.
Also, for those age 50+ there isn’t an additional catch-up contribution provision like there is with the Individual 401k. A final point to consider is IRS rules do not permit loans with a SEP IRA. You can see more on SEP IRAs in this article.
A simple IRA is also a small business IRA-based plan with a simplified method for employers to make direct contributions toward their employees’ retirement and their own retirement. Employees may choose (not mandatory) to make regular contributions and the employer makes matching or non-elective contributions. SIMPLE IRAs are ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a 401K retirement plan. The main advantage of a Simple IRA to other tax advantaged retirement plans is the much lower administration costs. In order to establish a SIMPLE IRA, the business must have 100 or fewer employees and it also cannot have any other type of retirement plan in place.
2014 Contribution Limits: An employee may defer up to $12,000 for 2014, with employees over age 50 allowed to make a catch-up contribution of up to $2,000 (for a total of $14,000).
2015 Contribution Limits: An employee may defer up to $12,500 for 2015 (a $500 increase over 2014), with employees over age 50 allowed to make a catch-up contribution of up to $2,000 (for a total of $14,500).
Contributions under a SIMPLE IRA plan that count toward the overall annual limit on elective deferrals an employee may make to tax advantaged retirement plans. The employer is generally required to match each employee’s salary reduction contribution on a dollar-for-dollar basis up to 3% of the employee’s compensation.
When Can I Withdraw my Retirement Account Savings?
The key ages at which you can withdraw funds from the most commonly used retirement accounts without paying a penalty are:
401K and 403b retirement plans are generally company sponsored and the age at which you can start taking penalty (10%) free withdrawals is 59½ . However, you must start taking the minimum distribution (based on a variety of factors) by age 70½. You will have to pay regular income taxes on any withdrawals from 401K plans.
IRA are self-run tax-deferred retirement plans with investors being able to deduct all or part of their contributions from pretax income if certain conditions are met. Like a 401K, the official retirement age at which you can make penalty free withdrawals is 59½. You also may owe an excise tax if you do not begin to withdraw minimum distributions by April 1st of the year after you reach age 70½.
Roth IRA. Because a Roth IRA does not permit a tax deduction at the time of contribution, the restrictions on withdrawals are a little different to a traditional IRA. Contributions can also be made to your Roth IRA after you reach age 70½, unlike a traditional IRA. There is no requirement to start taking distributions while the owner is still alive and in fact the entire proceeds can be passed to your heirs tax free, a very useful estate planning feature. If you do take the tax free distributions, you can only do so after the savings have been in the account for a 5-year period beginning with the first taxable year for which a contribution was made (known as qualified distributions). Also, the IRA age limit for withdrawal still applies where you can only take penalty (10%) free distributions after you reach age 59½. A Roth IRA also allows you to take a one-time penalty and tax free $10,000 withdrawal if buying your first home.
There are exceptions to the above age limits based on special conditions and extenuating circumstances like spouse death, hardship, disability and qualified medical expenses. Also the payments from retirement plans can be provided as lump-sum distributions or via periodic payments (e.g. like an annuity) depending on the terms of the plan. Consult the IRS website and your plan administrator (e.g Vanguard, Fidelity etc) for detailed rules and regulations.
Can I Make Catch-Up Contributions to 401K, IRA, 403b and SIMPLE IRA Retirement Plans?
As detailed in this article, catch-up contributions allow people who feel that they do not have enough of a nest egg to make higher retirement plan contributions as they approach retirement.The catch-up contribution is not prorated or apportioned in the year you turn 50. This means that as long as you turn 50 by December 31st of the given year, you can make the full catch-up contribution amount.
In addition to standard deferral/contribution limits, eligible participants can make catch-up contributions up to $5,500. The following plans are covered by this maximum limit : 401(k), 403(b), and governmental 457(b). Plan contributions are not treated as catch-up contributions until they exceed the annual standard limit shown in the tables above. So for those over 50, the maximum contribution limit in 2013 would be $23,000. Catch-up contributions are generally made in the same manner as regular contributions, i.e. through an automatic payroll deduction or via the plan administrator. They must also be made before the end of the plan year which varies by plan and employer, but generally ranges from December 31st to April 15th.
For those over 50, SIMPLE IRA or SIMPLE 401(k) plans may permit catch-up contributions up to $2,500. This is above the standard $11,500 contribution limit for SIMPLE IRA plans. You can also make catch-up contributions of up to $1,000 to your Traditional or Roth IRA. Catch-up contributions to an IRA are due by the due date of your tax return (not including extensions). SEP-IRAs, which have higher maximum contribution limits, do not allow additional catch-up contributions like the other tax-advantaged retirement plans discussed above.
IRS Reference Sources:
To get more detailed information, forms and worked examples I suggest reviewing the official IRS publications which can be found via the following links. Leave a comment if you have any questions.