The Treasury Department has announced retirement plan contribution limits, which are adjusted annually, for 2019. Because inflation has gone up a bit recently, contribution limits are also going up, which means you can save more money next year.

The maximum pre-tax contribution limit for an Individual Retirement Account (IRA) is increasing to $6,000 in 2019 after a six-year stall at $5,500. An extra $500 may not seem like a big deal, but the investment will compound over time, making the increase especially valuable for younger workers. For example, an investment of $500 annually will amount to an extra $100,000 in retirement savings over 35 years.

Employees who participate in a 401(k) or similar workplace retirement plan can expect an increase from $18,500 in 2018 to $19,000 in 2019. That limit will also apply to 403(b), the Federal Government’s Thrift Savings Plan (TSP), and most 457 plans. As a result of this change, workers can defer paying income tax on approximately $42 more per month.

For those 50 years old and over, catch-up contribution limits remain the same for 2019: $6,000 for workplace plans and $1,000 for IRAs. All of this combined means that savers over 50 have the potential to stash away $32,000 in 2019.

The maximum amount of annual compensation that can be taken into account when determining employer and employee contributions is increasing in 2019 from $275,000 to $280,000. However, highly compensated employees may face additional limits on contributions. Earning more than $120,000 in 2018 may qualify you as highly compensated for 2019 contribution limits, and earning more than $125,000 in 2019 may qualify you as highly compensated for 2020 contribution limits.

If you have any questions or would like to review your retirement plan contribution amounts together, please give me a call at 317.549.3091 or email me to schedule an appointment.

Jean Miller