IRS announced on October 19 various pension and retirement plan contribution limits for 2018. The announcement (IR-2017-177) affecting many is this:
- “The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.”
- “The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.”
- “The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.”
I do not usually use this space and this forum to stray too deeply into politics, but on this one I am going to stray into the political realm briefly, so if your interest is solely in the tax tid bits, you can stop reading here.
We have been hearing a lot of news about changing the 401(k) plan (and probably all of the other retirement savings vehicles) in the name of tax simplification and paying for the big budget deficits generated by huge tax cuts. If the leaks about the tax bill being written in the deep dark recesses of Washington are correct, a lot of people will lose the much needed and well liked method of tax-deferred retirement savings, and it will amount to a huge and immediate tax increase on the middle income Americans. That would be a terrible deal.
For years and years, politicians of every stripe have told the hard-working citizens of this country (both rich and not so rich) that they should not rely solely on Social Security for retirement. Indeed, the basic Social Security payment is not adequate to meet the basic needs for most retirees. For years and years, politicians (but particularly those of the conservative stripe) have been trying to get the government out of the pension business and helping to get business out of the pension business. too. The push has been to put retirement saving into the category of “personal responsibility” and to get people to take their retirement savings and invest in the markets. Well, here we are at the end of 2017, and much of the country has turned away from the old fashioned pension and toward the vaunted personal responsibility of deferring current earnings into 401(k), 403(b), and 457 plans.
Hey, you convinced us. Millions use these accounts for needed retirement income and passing wealth to their children and grandchildren Millions have invested billions in the markets Now, you are going to yank the rug out from under them?
As a tax preparer and estate planner, I see every day that these retirement plans are a huge benefit to all kinds of people. Many modest middle and middle-upper income folks are (or are well headed toward being) retirement plan millionaires. These plans work for all the right reasons. While I have my doubts about whether any big changes to retirement plans will survive the lobbying efforts of the big Wall Street investment houses, anyone who plans on retirement ever should add their voice to shout down this terrible idea.