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.