The IRS has announced several cost-of-living adjustments that affect contribution limits for retirement plans, and thresholds for deductions, credits, and exemptions.
Please review these updates, as well as the changes to the tax law, with your HCM Wealth Advisor.
Employer Retirement Plans
Employees who participate in 401(k), 403(b), and most 457 plans can defer up to $18,500 in compensation in 2018 (up from $18,000 in 2017); employees age 50 and older can defer up to an additional $6,000 in 2018 (the same as in 2017).
Employees participating in a SIMPLE retirement plan can defer up to $12,500 in 2018 (the same as in 2017), and employees age 50 and older can defer up to an additional $3,000 in 2018 (the same as in 2017).
HCM recommends funding IRAs early in the year, to maximize the amount of time available for tax-advantaged growth. However, it is important to note that Roth IRA Recharacterizations are no longer allowed under the new tax rules. Therefore, it is important to be deliberate in your IRA decision making.
The limit on annual contributions to an IRA (Traditional or Roth) remains unchanged at $5,500 in 2018. Individuals age 50 and older can contribute an additional $1,000.
Traditional IRA Deductibility:
Your ability to deduct a Traditional IRA Contribution depends on your Modified AGI, your filing status, and whether or not you or your spouse are covered by retirement plans at work.
For those covered by a retirement plan at work:
For those NOT covered by a retirement plan at work:
Roth IRA MAGI Phaseout Range:
Themodified AGI phaseout ranges for individuals to make contributions to a Roth IEA are:
Again, please note that Roth IRA Recharacterizations are no longer allowed. There are no income limits for Roth conversions.
Health Savings Accounts
The annual contribution limit for single contributors is $3,450 if you are under 55, and $4,450 if you are over 55.
A high-deductible health plan out of pocket maximum for self-coverage is $6,650 for individuals and $13,300 for families.
Estate and Gift Tax
The annual gift tax exclusion for 2018 is $15,000, up from $14,000 in 2017.
The gift and estate tax basic exclusion amount for 2018 is $11,200,000, up from $5,490,000 in 2017.
There is no personal exemption amount for 2018; it was $4,050 in 2017. For 2018, there is no phaseout or overall limit on itemized deductions once AGI exceeds certain thresholds.
For 2017, personal exemptions were phased out and itemized deductions were limited once AGI exceeded $261,500 (single), $287,650 (HOH), $313,800 (MFJ), or $156,900 (MFS).
One of the primary selling points of the new tax plan was an increase in the size of the standard deduction (though it was offset by the elimination of the personal exemption). Standard deductions for 2018 are below:
The additional standard deduction amount for the blind or aged (age 65 or older) in 2018 is $1,600 (up from $1,550 in 2017) for single/HOH or $1,300 (up from $1,250 in 2017) for all other filing statuses. Special rules apply if you can be claimed as a dependent by another taxpayer.
Alternative Minimum Tax (AMT)
Though the AMT was not eliminated as initially promised, the exemption amounts were increased:
Important Upcoming Dates:
January 16, 2018:
- Estimated tax payments are due for the fourth quarter of 2017.
April 17, 2018:
- 2017 individual tax returns (or extension request forms) are due.
- Estimated tax payments are due for the first quarter of 2018.
- IRA Contributions for 2017 must be made (2017 contribution limits: $5,500 under age 55; $6,500 for age 55 and above).
- 2017 Health Savings Account contributions must be made ($3,400 for single coverage, contributor under age 55; $4,400 for single coverage, contributor age 55 and above; $6,750 for family coverage, contributor under age 55; $7,750 for family coverage, contributor age 55 and above).
What You Can Do Next:
If you would like to discuss your 2018 tax planning schedule and opportunities, or you still would like to make an IRA or Health Savings Account contribution for 2017, please contact your HCM Wealth Advisor:
Mike Hengehold ([email protected])
Casey Boland ([email protected])
Jake Butcher ([email protected])
Jim Eutsler ([email protected])
Greg Middendorf ([email protected])
Steve Hengehold ([email protected])
Doug Johnson ([email protected])