It’s time to adjust your 401(k) and IRA contributions for 2019! The Treasury Department has announced inflation-adjusted figures for retirement account savings, and there are a lot of changes that will help savers contribute more to these accounts.
After six years stuck at $5,500, the amount you can contribute to an Individual Retirement Account is being bumped up to $6,000 for 2019. The amount you can contribute to your 401(k) goes up from $18,500 in 2018 to $19,000 in 2019. Catch-up contribution limits if you’re 50 or older in 2019 remain unchanged at $6,000 for workplace plans and $1,000 for IRAs.
If your employer allows after-tax contributions or you’re self-employed, you can save even more. The overall defined contribution plan limit moves up to $56,000, from $55,000. Here is a breakdown of the changes for 2019:
Individual Retirement Accounts.
The limit on annual contributions to an Individual Retirement Account (pretax or Roth or a combination) is moving up to $6,000 for 2019, up from $5,500.
The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000. (Remember that 2018 IRA contributions can be made until April 15, 2019.)
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.
The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is $19,000 for 2019—a $500 boost over 2018.
Note, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.
After-tax 401(k) contributions.
If your employer allows after-tax contributions to your 401(k), you also get the advantage of the $56,000 limit for 2019. It’s an overall cap, including your $19,000 (pretax or Roth) salary deferrals plus any employer contributions (but not catch-up contributions).
SEP IRAs and Solo 401(k)s.
For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) goes up from $55,000 in 2018 to $56,000 in 2019.
That’s based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also goes up from $275,000 in 2018 to $280,000 in 2019.
Defined Benefit Plans.
**UPDATE: The limitation on the annual benefit of a defined benefit plan goes up from $220,000 in 2018 to $225,000 in 2019.
These are powerful pension plans (an individual version of the kind that used to be more common in the corporate world before 401(k)s took over) for high-earning self-employed folks.