Saving for retirement is getting just a little bit easier in 2019. As the cost of living increases, the IRS has announced higher contribution limits to 401Ks and IRAs. These changes attempt to mirror the rise in cost of living expenses. Technical guidelines are many and can be found in Notice 2018-83. The major highlights for these 2019 changes include an increase from $18,500 to $19,000 for 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. Contributions to IRAs have not seen an increase since 2013, but are now shifting from $5,500 to $6,000. Also of note, there are certain conditions which allow deductions from traditional IRAs. For example, if the taxpayer or spouse is covered by a retirement plan at their work, the IRS allows for a reduction or phase out of the deduction until eliminated.
Cost of living increases are having a positive impact on Social Security benefits in 2019 as well. The Consumer Price Index measures cost of living increases based on changes in prices paid on consumer goods and services. Social Security benefits will see a 2.3% increase in direct proportion to the CPI increase this past year. Of course, this increase in social security benefits will be covered by an increase in taxes in 2019. The Social Security contribution will increase by around 3%.
If you are saving for retirement, 2019 will be a good time to add a little bit more to your nest. At the same time, plan for the increase to come at tax time on social security contributions. If you are looking for additional information on changes to retirement saving and investing, we can help!