New contribution limits for 2019 are out— and they’ve gone up. Good! This is the first time they’ve gone up in the past 6 years, and experts have been saying we’re long overdue for a while. Time to take advantage of this opportunity for extra savings.
Want the lowdown on these updates? Here’s a summary:
2019 SELF DIRECTED IRA CONTRIBUTION LIMITS
|2019 SELF DIRECTED IRA CONTRIBUTION LIMITS|
|TRADITIONAL & ROTH||SEP||SIMPLE||HSA||ESA|
|UNDER 50||$6,000 (+$500)||25% of income, now capped at $56k (+$1000)||Capped at
|$2,000 (no change)
50+ (55+ FOR HSA)
TRADITIONAL & ROTH CONTRIBUTIONS
The contribution limit for 2019 is now $6,000 per year for both Traditional and Roth IRAs, up from $5,500 for 2018. Catch up contributions will remain $1,000, so if you are over 50 you can contribute up to $7,000 a year.
Traditional IRAs allow for tax-deductions upfront with deferred taxes— meaning you don’t pay taxes until the money comes out of the account. But the IRS wants those taxes eventually, so you’ll need to start taking yearly Required Minimum Distributions (RMDs) once you turn 70 ½, where you’ll be required to pay taxes on that distribution as ordinary income.
Roth IRAs are post-tax, meaning you’ve already paid taxes on the money before you contributed to your IRA. Since you’ve already paid taxes on these funds, Roth IRAs don’t owe taxes when distributing funds, and aren’t required to take RMDs. Your investment gains are in a post-tax environment.
SEP IRA CONTRIBUTIONS
The contribution limit for SEP IRAs is now capped at $56,000, an additional $1,000 compared to 2018. The salary cap is now $280,000.
SEP IRAs are plans for small business owners (with one or more employees), or anyone self-employed, and have different deadlines and higher contribution limits compared to Traditional and Roth IRAs. This makes them especially attractive for self directed investors (especially real estate investors), since you can start investing tax-deferred at a faster rate. Employees can’t directly contribute to the plan, and you must contribute the same amount for all employees, including yourself— but the benefits can be huge, if it’s the right plan for you.
SIMPLE IRA CONTRIBUTIONS
There was an increase to SIMPLE contribution limits as well, raising it to $13,000 (up $500 from 2018). There were no changes made to catch up contribution limits, which remain at $3,000.
SIMPLE IRAs are for employers with 100 or fewer employees, but unlike the SEP IRA, they allow for employee contributions to the plan. It’s a low-hassle, low-cost plan to establish and maintain, and with a self directed SIMPLE IRA, employees can invest their retirement their way, for no extra cost.
There were a few other changes for next year as well. These changes may impact your investment strategy, so you may want to discuss with a financial advisor if you have detailed questions.
Especially for self directed IRA investors, bigger contributions means there’s more opportunity to invest and to build retirement wealth. The industry has been clamoring for a change, something to encourage greater retirement savings for a world that requires so much more than it used to in your golden years— and maybe this is a step in the right direction. If you have questions about the tax implications of these changes by the IRS, please consult a tax advisor. For any other questions regarding your self directed IRA, please reach out to one of our representatives and we’d be happy to help.