As we roll along into 2015, there are some tax changes (as there are every year) that are important for you to know. Staying on top of important changes can help you save more and sometimes avoid headaches and hassles so I thought it important to summarize some key changes to know about:
Higher 401k contribution limits
For 2014, the contribution limit for 401(k) retirement accounts is $17,500, plus another $5,500 “catch-up” contribution for those 50 or older. Those limits rise next year to $18,000, along with a $6,000 catch up for those 50 and above. These numbers also apply to 403(b) plans, most 457 plans, and the federal government's Thrift Savings Plan. Note that to qualify for the catch-up contributions, you need to reach the minimum eligibility age of 50 at any time during 2015.
Deduction eligibility widens for traditional IRAs
IRA contribution limits remain unchanged — capped for most of us at $5,500, with a $1,000 catch-up contribution allowed for those 50 and older. But there are other IRA rule changes. Your ability to deduct traditional IRA contributions from your taxable income is income-limited, with allowed amounts phased out as your income rises. The limits have been made a bit more generous for 2015. Here are the details from the IRS:
“The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $183,000 and $193,000, up from $181,000 and $191,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.”
Roth IRA eligibility widens, too
The Roth IRA's eligibility is also expanding a little, with the AGI phase-out range rising from between $181,000 and $191,000 in 2014 to between $183,000 and $193,000 in 2015 for married-filing-jointly couples. For single individuals and heads of households, the range rises from between $114,000 and $129,000 to between $116,000 and $131,000.
IRA rollovers limited
Starting in 2015, you are only allowed to execute one IRA rollover per year. A rollover involves taking money out of one IRA, holding it for fewer than 60 days, and then moving it into another IRA. Note: this does not apply to trustee-to-trustee transfers, such as when you move an IRA account and its holdings from one brokerage or trustee to another.
New retirement account debuts: myRA
Anew kind of retirement account has been created by the U.S. Department of the Treasury and is designed to be offered through employers. My Retirement Account, or myRA, is small in scale but is useful as a way to start saving money away for retirement. It charges no fees and offers modest, guaranteed growth, so you won't lose any money. You can start a myRA with just $25 and can add as little as $5 at a time, though more is obviously better. Note: contribution limits are are the same as for IRAs – $5,500, plus $1,000 for those 50 and up. Once your account reaches $15,000 in value, it has to be rolled over into a private-sector Roth IRA.
Contribution limits rise for SEP IRA
Self-employed folks accumulating retirement money in a SEP IRA will see their contribution limits rise from $52,000 in 2014 to $53,000 in 2015, with related compensation limits rising from $260,000 to $265,000. These numbers apply to solo 401(k)s, too.
Contribution limits rise for SIMPLE IRAs, too
For 2015, you will be able to contribute up to $12,500, up from $12,000 in 2014, plus a $3,000 catch-up contribution if you're 50 or older.
New changes in Health Savings Account eligibility rules
Since 2013 you have been able to carry forward up to $500 in unused money from a Flexible Spending Account. Starting in 2015, however, if you carry forward any money, you will no longer be eligible for a Health Savings Account. This is a confusing new rule, so the IRS clarified it in a memo which you can read more about here. It's still complicated, though, so you might want to consult a tax professional.
Tax break extenders for 2014
This news is related to your 2014 tax return, not your 2015 return, but it's worth noting and is a very recent taxlaw change. More than 50 tax breaks facing extinction were just given a retroactive one-year extension by President Barack Obama. They had expired as of Dec. 31, 2013, meaning we couldn't apply them to our 2014 returns, but they now expire on December 31, 2014. Thus, you can now again enjoy the following breaks (among many others) — though not beyond tax year 2014unless they're extended again:
- The ability to deduct state and local sales taxes instead of state and local income taxes. (This matters a lot to those in states with no income tax.)
- The ability to exclude from taxes up to $2 million on forgiven residential mortgage debt.
- The deduction for mortgage insurance premiums.
- The deduction for teachers of up to $250 for classroom supplies they buy on their own.
- The deduction of up to $4,000 for higher education costs.
- The energy-efficient home-improvements tax credit of up to $500 for qualifying improvements.
Higher penalty for not carrying health insurance
In 2014, those who did not have the Obamacare mandated “minimum essential coverage” by March 31, 2014, will get socked with a penalty of 1% of your income above the tax filing threshold, or $95 per adult and $47.50 per child (up to a family maximum of $285) – whichever is greater. For 2015, these jump to 2% of your income, or $325 per person and $162.50 per child, up to a family maximum of $975. These rise further in 2016.
(Source: The Motley Fool)
*Bart Zandbergen CFP® does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.