One of our major concerns in the retirement planning world is accounting for inflation. It’s important to remember that inflation means today’s lifestyle will cost more tomorrow. So we can’t just save enough to cover our current living expenses once we stop working; we need to save at a faster rate in order to be prepared for a higher cost of living later in life.
Luckily, the IRS periodically reviews the inflation rate, and adjusts the amounts we can contribute to tax-advantaged retirement accounts. In 2015, you may be able to contribute even more to your retirement fund, with all taxes deferred until retirement. The IRS recently announced the following changes in contribution limits.
401(k). The annual contribution limit for 401(k) accounts has been raised from $17,500 to $18,000 in 2015.
401(k) Catch-up contributions. If you’re aged 50 or older, you may be getting worried about having enough money for retirement. The good news is that in addition to the increase in 401(k) contributions, the IRS also raised the limit on catch-up contributions for older workers. You can now contribute an additional $6,000 to your 401(k), up from $5,500 this past year.
SEP IRAs and Solo 401(k)s. If you’re self employed or a small business owner, the IRS has decided you can contribute even more to a SEP IRA or solo 401(k) account. In 2015, you can contribute a maximum of $53,000 – an increase of a thousand dollars in your annual savings power.
SIMPLE IRA. The tax-advantaged contribution limit for a SIMPLE IRA has been raised from $12,000 to $12,500 in 2015. SIMPLE IRAs also have a catch-up plan, and the contribution limit has been raised from $2,500 to $3,000.
In order to make the most of your retirement plan, remember to contribute the maximum allowable amounts to your account. You don’t have to pay taxes on the money until you begin taking distributions in retirement, at which point the money will be taxed as regular income.