2016 Retirement Contribution Limits

How much of a priority are your retirement savings?

Waiting to start saving for retirement is a huge financial mistake, because each day you’re spending instead of saving you miss out on interest that could amount to hundreds of thousands of dollars by the time you retire.

Believe me, I understand that it is hard to cut back, to deny yourself a lot of fun and luxurious things that come with spending rather than saving. After all, you’re living right now, not in the future!

So I understand if you can’t max out your IRA, 401(k), or whatever other investment vehicle you use, but you should be aware of the limits on how much you can contribute. If you haven’t yet started to save, start small, with 3% of your income. Then, as your adjust to your newfound level of savings, bump your savings rate up marginally – by as little as 1% – in a few months, or next year even!

2016 Overview:

The smartest way to save for retirement is to review your retirement plan each year to keep up with chances in contribution laws and limits, as well as chances in income, expenses, and life circumstances.
IRA plan contribution limits will not chance in 2016
Roth IRA limits increased to $117,000 for individuals, and $184,000 for married couples.
You are eligible for the “Saver’s Tax Credit” on 2016 retirement contributions if you make $61,500 and are married, or $30,750 if you are single.
IRA contributions are deductible if you make $184,000 or less and are married. If your IRA contributions are not through a work-sponsored plan, you can deduct your IRA contributions with no limits on income.

Skipping investing for retirement now could cost you hundreds of thousands of dollars in the long run

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Review Changes Yearly

Each year it is important to review changes to retirement plan contribution laws and limits, and it is smart to do so within the first couple of months in the new year since contribution laws and limits change annually on the first of the year. Reviewing, planning, and creating actions steps to help you reach your retirement goals are most effective when address within the first months after the changes in laws and limits so that you have an entire year to take full advantage of the new retirement rules.

{Why I’m Skipping The New Year’s Resolution and Setting Goals Instead + A Free Goals Workbook}

Contribution Laws & Limits

Not much in the arena of contribution limits is changing in 2016:

Ira Contribution Limits: $$5,500 (staying the same)

Employer Plan Contribution Limits: $18,000 (staying the same)

Income Limits For Deductible IRA Contributions: Increasing, but varies by tax status

Income Limits for Roth IRA Contributions: Increasing, but depends upon tax status

Family & Income Changes

Every year, as you and your family’s income fluctuates, so does you ability to contribute to retirement – and take deductions for those contributions. Additionally, with extra income, you may be able to increase your contributions if you find creative ways to avoid lifestyle creep.

{Don’t Know Where To Start? Begin Right Here}

Changes in your family, such as getting married, divorced, having children, or changing jobs can also affect your retirement plan, as well as the contributions and credits you’re eligible for. Before you formulate a retirement contribution plan for the year, discuss changes in your family so that you have a clear picture of what you are and are not able to do.

IRA Contribution Limits

Not much in the arena of contribution limits is changing in 2016:

IRA Contribution Limits: $5,500

This amount isn’t changing from 2015. If you’re under 50 years old, you can contribute $5,500. if you’re 50 years old or older, the limits remains at $1,000.

Employer Plan Contribution Limits: $18,000

If you’re contributing to your 401(k), 403(b), most 457 plans, and even the federal government’s Thrift Savings Plan (we contribute to this because the hubs is in the National Guard), you can contribute up to $18,000. If you are 50 years or older, you can make additional catch-up contributions of $6,000, for a total of $24,000 per year.

Income Limits For Deductible IRA Contributions:

Only taxpayers with certain modified adjusted gross incomes (AGI) can make contributions to a traditional IRA, since they are being phased out within a certain range. The income limits vary by whether the taxpayer and spouse (if applicable) are eligible to participate in a retirement plan through their employer.

Single/Head of Household: If you are covered by a workplace retirement plan, the income phase-out range is $61,000 to $71,000. If you are not covered by a workplace retirement plan, you can take a full deduction for your contribution to a traditional IRA until your income reaches $117,000. Once your income reaches $132,000, you cannot deduct any traditional IRA contributions.
Married: If you are married filing jointly, if the spouse who contributes to an IRA has a workplace retirement plan, the income phase out is $98,000 to $118,000. If you are married filing separately and are covered by a workplace retirement plan, the phase-out is $0 to $10,000. to take a full deduction for your contribution to a traditional IRA, you must not be covered by a workplace retirement plan but your spouse is, you must make less than $184,000 together. The income phase-out for the deduction is $194,000.

Income Limits for Roth IRA Contributions:

Single: The Income phase out range is $117,000 to $132,000 for single individuals and heads of households.
Married: The income phase out range for married filing jointly is $184,000 to $194,000. If you are married filing separately, income phase out is $0 to $10,000. If you have both a traditional and Roth IRA, you can only contribute a maximum of $5,500 (or $6,500 of you’re 50 or older) across both accounts in 2016.

Saver’s Tax Credit

The Saver’s Tax Credit is meant to help low and moderate income taxpayers. The income limits for the credit are as follows:

$30,750 for married filing separately or single filers
$46,125 for heads of households
$61,500 for married filing jointly

This handy chart from Betterment can help determine your contribution limits for 2016, so when you review your retirement savings plan for the year you can tailor it to the changes in tax laws.

Don’t know how much you can contribute to your retirement in 2016? Check this out:

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For even more detailed retirement info that can help you determine whether you’re on track, within the limits, and much more, check out Betterment’s RetireGuide. Betterment is an easy to use, low-fee investment platform, made for financially-conscious people (like you and me) who want to set their investments and forget them. The Betterment RetireGuide is free to use, and as a retirement planning tool is already supports the 2016 contribution rules and limits.