Start Your 2018 Tax Planning Now

Jan 16
Start Your 2018 Tax Planning Now

As anyone could imagine, the hottest topic in wealth planning right now is trying to decipher the impacts of the Tax Cuts and Jobs Act Of 2017.  I am currently working on a summary of the tax legislation which I will publish later this month.  But for now, I think that it is prudent to focus on some other key facts and dates from a tax perspective as we start this new year.

Bottom line, there aren’t a whole lot of significant changes from a contribution limit standpoint from 2017 to 2018.  You will see in bold below where there were slight changes.  One specific point of emphasis that I make every year is regarding 401k contributions.  I really encourage people to contribute enough to receive their company match if their company offers one.  Matches can vary greatly by company but usually range between 3% and 6%.  Ensuring that your own contributions meet the qualifications, it is essentially receiving free money.

Qualified Dividend and Long-Term Capital Gains Rates:

  • 0%: Single taxpayers with incomes between $0 and $38,600; married couples filing jointly with incomes between $0 and $77,200.
  • 15%: Single taxpayers with incomes between $38,600 and $425,800; married couples filing jointly with incomes between $77,200 and $479,000.
  • 20%: Single taxpayers with incomes over $425,800; married couples filing jointly with incomes over $479,000.

Medicare Surtax: As in years past, an additional 3.8% Medicare surtax will apply to the lesser of net investment income or the excess of modified adjusted gross income over $200,000 for single taxpayers and $250,000 for married couples filing jointly.

IRA contribution limits (Roth or traditional): $5,500 under age 50/$6,500 over age 50.  No change from 2017.

Income limits for deductible IRA contribution, single filers or married couples filing jointly who aren’t covered by a retirement plan at work: None; fully deductible contribution.

Income limits for deductible IRA contribution for filers covered by a retirement plan:

  • Single: Modified adjusted gross income under $63,000–fully deductible contribution; between $63,000 and $73,000–partially deductible contribution; more than $73,000–contribution not deductible.
  • Married: Modified adjusted gross income under $101,000–fully deductible contribution; between $101,000 and $121,000–partially deductible contribution; more than $121,000–contribution not deductible.

Income limits for nondeductible IRA contributions: None.

Income limits for IRA conversions: None, but note that the tax legislation eliminated the opportunity to recharacterize a Roth IRA as a traditional IRA, or vice versa.

Income limits for Roth IRA contribution:

  • Single: Modified adjusted gross income under $120,000–full Roth contribution; between $120,000 and $135,000–partial Roth contribution; more than $135,000–no Roth contribution.
  • Married couples filing jointly: Modified adjusted gross income under $189,000–full Roth contribution; between $189,000 and $199,000–partial Roth contribution; more than $199,000–no Roth contribution.

Contribution limits for 401(k), 403(b), 457 plans, or self-employed 401(k) (traditional or Roth): $18,500 under age 50; $24,500 for age 50 and older.  Increase of $500 from 2017.

Total 401(k) contribution limits, including employer (pretax, Roth, after-tax) and employee contributions and forfeitures: $55,000 if under age 50; $61,000 if 50-plus.  Increase of $1,000 from 2017.

SEP IRA contribution limit: The lesser of 25% of compensation or $55,000.  Increase of $1,000 from 2017.

Health savings account contribution limits:

  • Single: $3,450 (under 55); $4,450 (over 55).  Increase of $50 from 2017.
  • Family: $6,900 (contributor under 55); $7,900 (contributor 55-plus).  Increase of $150 from 2017.

High-deductible health plan out-of-pocket maximum, self-only coverage: $6,650.  Increase of $100 from 2017.

High-deductible health plan out-of-pocket maximum, family coverage: $13,300.  Increase of $200 from 2017.

Section 529 college-savings account contribution limit: Per IRS guidelines, contributions cannot exceed amount necessary to provide education for beneficiary. Deduction amounts vary by state, and those contributing very large amounts may have to file a gift tax form. Section 529 college savings account income limit: None.

Estate Tax, Gift, Generation-Skipping Tax: The new tax laws greatly increase the lifetime exclusion amount to $11.2 million through 2025; couples receive an exclusion that’s double that amount, or more than $22 million.

2018: Important Tax Dates to Remember

Jan. 1: New IRA, retirement plan, and HSA contribution and income limits went into effect for 2018 tax year, as listed above.

Jan. 16: Estimated tax payments due for fourth quarter of 2017.

April 17: Individual tax returns (or extension request forms) due for 2017 tax year.

  • Estimated tax payments due for first quarter of 2018.
  • Last day to contribute to IRA for 2017 tax year (2017 contribution limits: $5,500 under age 55; $6,500 for age 55 and above).
  • Last day to contribute to health savings account for 2017 tax year (2017 contribution limits: $3,400 for single coverage, contributor under age 55; $4,400 for single coverage, contributor age 55 and above; $6,750 for family coverage, contributor under age 55; $7,750 for family coverage, contributor age 55 and above).

June 15: Estimated tax payments due for second quarter of 2018.

Sept. 17: Estimated tax payments due for third quarter of 2018.

Oct. 15: Individual tax returns due for taxpayers who received a six-month extension.

Dec. 31: Retirees age 70 1/2 and older must take required minimum distributions from traditional IRAs and 401(k)s; those RMDs are based on their balances at the end of 2017. Last date to make contributions to company retirement plans (401(k), 403(b), 457) for 2018 tax year.