Last week, the Internal Revenue Service (IRS) and the Social Security Administration (SSA) released 2014 figures that can impact your retirement planning. Here’s what they had to say:
The withholding percentage will remain at 7.65% (Social Security or OASDI Portion will remain at 6.2% on earnings, up to the applicable maximum amount of earnings, and the Medicare or HI portion will remain 1.45% on all earnings). The maximum amount of earnings that are subject to the OASDI portion will increase from $113,700 in 2013 to $117,000 in 2014. Essentially, tax payers that typically exceed the maximum amount of earnings can expect to pay an additional $204.60 in Social Security Taxes next year ($7,254, up from $7,049.40 in 2013). Those already receiving Social Security benefit will receive a 1.5% increase in their benefits, beginning in 2014.
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For traditional employees with a 401(k), 403(b) and most 457 plans, the annual contribution limits of 2014 will remain the same as 2013. In other words, you will still be able to contribute a maximum of $17,500. The $5,500 “catch-up” contribution limit, which allows employees that are age 50 or older at any point in the year (including 12/31/2014) to make an additional contribution, will also remain the same at $5,500 in 2014.
For the self-employed with either SEP IRAs or Solo 401(k)s, the contribution limits increase by $1,000 in 2014, from $51,000 in 2013 to $52,000 in 2014.
IRA plans will maintain their 2013 annual contribution limits of $5,500 for 2014. The good news is that the phase-outs for both deductible IRAs, as well as Roth IRAs will increase. For deductible IRAs for Individual filers covered by a workplace retirement plan to have an additional $1,000 of income. Phase-outs for 2014 will begin at $60,000 and end at $70,000, which is up from the 2013 range of $59,000 to $69,000. For Married Filing Joint filers, where both spouses are covered by a workplace retirement plan the phase-out range also increases by $1,000, from $95,000 – $115,000 in 2013, to $96,000 – $116,000 in 2014. If only one spouse is covered by a workplace plan, the phase-out range increases by $3,000, from $178,000 – $188,000 in 2013 to $181,000 – $191,000 in 2014.
For Roth IRA contributions, the phase-out range increases by $3,000 for Married Filing Joint filers, from $178,000 – $188,000 in 2013 to $181,000 – $191,000 in 2014. For single filers, the increase is only $2,000, from $112,000 – $127,000 in 2013, to $114,000 – $129,000 in 2014.
Remember – You can still contribute to an IRA if your income exceeds the phase-out range, but your contribution is no longer deductible. If you are interested in opening a Roth IRA, but exceed the phase-out range, you can still contribute to a non-deductible IRA and then convert it to a Roth IRA.
Whatever your situation is, it is always important to save as much as you can for retirement. If you have questions about which savings method is right for you, you should consult with your financial professional to find out the best plan for your situation.