IRS 2016 cost-of-living adjustments for retirement plan contributions

The Internal Revenue Service released cost-of-living adjustments for retirement plan contributions today.

For workplace plans – the limit for contribution into 401ks and 403bs as well as Thrift Savings Plan and most other 457 deferred compensation plans will remain $18,000 as we have this year. Plans generally incorporate cost-of-living adjustments by reference and, as mentioned above, the key limits have not changed.

Under IRS rules, employers must withhold 20% of the taxable portion of that distribution – just the earnings for a Roth 401(k) and all earnings and contributions for a traditional 401(k) – in the event you don’t deposit that cash in a new tax-advantaged retirement account within 60 days.

As a former employee, you won’t be able to make additional contributions to the account and you may also give up the option of taking a loan from the plan. Contribution limits for September IRA or a solo 401(k) are unchanged at $53,000 for 2016. If your spouse has a workplace plan, but you don’t, and jointly earn under $184,000, then you can deduct the entire amount of your contribution.

If you itemize your taxes, you can claim both cash and noncash contributions on Schedule A of the 1040 tax form.

Self-employed and small-business plans. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction of the IRA contribution will be phased out when the couple’s income lies between $184,000 and $194,000, up from $183,000 and $193,000 in 2015.

The limit on annual contributions to an IRA is unchanged at $5,500, with catch-up contributions (for people aged 50 and older) remaining at $1,000 for 2016.

The SIMPLE. The limit on SIMPLE retirement accounts for 2016 is $12,500 for 2016, the same as in 2015. For a married individual filing a separate return who is covered by a workplace retirement plan, the phaseout range remains $0 to $10,000. The tax break is eliminated for married couples making more than $116,000 if they are covered by a workplace plan. Those thresholds have gone up from $183,000 and $193,000 for 2015.

The AGI limit for the saver’s credit is $61,500 for married couples filing jointly, $46,125 for heads of household, and $30,750 for single taxpayers and for married individuals filing separately, all increases from 2015.

If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions.