The contribution limits for 401(k) plans and individual retirement accounts will stay the same in 2017. Workers remain eligible to defer paying income tax on up to $18,000 that they save in a 401(k) and $5,500 in an IRA. And employees age 50 and older continue to be able to save an additional $6,000 in a 401(k) and $1,000 in an IRA. However, the income limits that define who qualifies for tax perks for saving in retirement accounts will change in several important ways next year. Victims of Hurricane Matthew will also be allowed to take emergency withdrawals. Here’s a look at the 401(k) and IRA changes coming in 2017.
Higher IRA income limits. Many employees who have a 401(k) account at work can additionally make tax-deferred contributions to an IRA. Employees who earn up to $62,000 ($99,000 for couples) can defer paying income tax on IRA contributions of up to $5,500 ($6,500 if age 50 or older) in 2017. The tax deduction is phased out for those earning between $62,000 to $72,000 ($99,000 to $119,000 for couples) in 2017. For a retirement saver who doesn’t have a 401(k) account, but is married to someone who does, the tax deduction is gradually reduced if the couple’s income is $186,000 to $196,000. Workers who don’t have access to a 401(k) or similar type of workplace retirement account can claim a tax deduction for their traditional IRA contributions regardless of the amount they earn.
Larger Roth IRA income cutoffs. Workers can earn $1,000 more ($2,000 for couples) and remain eligible to save in a Roth IRA. People earning less than $118,000 ($186,000 for couples) can make Roth IRA contributions in 2017 that will set them up for the possibility of tax-free retirement income. However, Roth IRA eligibility is phased out for those earning between $118,000 and $133,000 ($186,000 to $196,000 for couples) in 2017.
Higher income threshold for the saver’s credit. Low and moderate income workers who save for retirement can bring in $250 more in 2017 and still qualify for the saver’s credit. Employees who earn less than $31,000 in 2017 ($62,000 for couples) might qualify for this tax credit that is worth between 10 and 50 percent of 401(k) and IRA contributions up to $2,000 for individuals and $4,000 for couples.
Special rules for victims of Hurricane Matthew. Victims of Hurricane Matthew will be allowed to tap their retirement account without the usual restrictions to cope with storm-related costs, including expenses that wouldn’t ordinarily qualify for a hardship distribution such as food and shelter. Employees who live or work in the parts of North Carolina, South Carolina, Georgia and Florida affected by the hurricane will be allowed to fast-track hardship distributions and loans from 401(k)s, 403(b)s and other types of workplace retirement accounts. IRA participants may also be able to take hardship distributions, but not loans under the new rules. A person who lives outside the disaster area can also take a loan or hardship distribution from a retirement account to assist a child, parent or grandparent who lives or works in the disaster area.
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