Retirement 2015: Rule Changes for the Year Ahead
Was one of your New Year's resolutions to get up to date and better informed about your retirement plans? If so, you're on the right track. The start of a fresh calendar is the perfect time to re-up your financial self-improvement goals.
As 2015 gets underway, understanding your options when it come to how you save and invest for your post-work years doesn't have to be a daunting process. From the introduction of MyRA plans to changes in contribution limits and income thresholds, let's look at a short list of what's new to think about for retirement planners, this year.
Read on, and your future retired self will thank you.
• MyRA: An accessible addition to the retirement-planning ecosystem, especially for younger investors and those just starting out. For an initial contribution as little as $25, you're creating a retirement savings bond that's backed by the U.S. Treasury. No fees, no risk of the bond losing value, and you can continue to contribute at low amounts should your budget continue to dictate a modest beginning for your future savings.
• 401(k) Contributions Increase: This year introduces a small hike in the contribution limits: up to $18,000 from $17,500. For older planners, the catch-up contribution maximum also went up a bit —to $6,000 from $5,500.
• IRA Contributions Increase: While many IRA limits remain unchanged, this year, SIMPLE accounts see a modest increase of $500 to the contribution limit, making the total now $12,500. Catch-up contributions are still at $2,500, the same as last year. Note, also, that employers can contribute $1,000 more to SEPs in 2015; the limit increased to $53,000 this year.
• IRA Income Phase-Out Changes: The government has raised the limits that prompt a tax deductible phase-out for investors seeking to contribute to their IRAs. The upshot? More individuals can enjoy the benefits of socking away money into these accounts. The breakdown is as follows:
• Traditional IRA: single w/workplace plan: $61,000–$71,000 income limit —a $1,000 increase.
• Traditional IRA: married filing jointly (as made by spouse w/workplace plan): $98,000–$118,000 income limit. This is a $2,000 increase from 2014.
• Traditional IRA: joint (as made by spouse w/o workplace plan): $183,000–$193,000 income limit per couple — up $2,000 from last year.
• Roth IRA: married (filing jointly): $183,000–$193,000 income limit, representing a $2,000 increase from last year.
• Roth IRA: single: $116,000–$131,000 income limit —a $2,000 increase.
• IRA Rollover Limit: The days of the government's somewhat lenient approach to the moving around of IRA funds appears to be over. As of January 1, retirement planners get one 60-day IRA rollover per year, and this is free of taxes and penalties (these are the rollovers in which you withdraw funds as a check, then deposit them into a new IRA within 60 days). If you try for more than one 60-day rollover in a year, you could end up paying fees and income tax. Note that the change does not affect rolling over funds between companies. So, if you change jobs and relocate your IRA more than once in 2015, your employers can transfer IRA accounts without incurring expenses each time.
• Annuity Distribution Options: New regulations from the Department of the Treasury open a fresh frontier for retirees. Allowing required distributions to start later in life for those who take a qualified longevity annuity contract — known as a QLAC, which typically an insurance company issues — can now put money into a program that begins to distribute payments at age 80–85 rather than the previously mandated 70-1/2 years old. A key advantage of a QLAC is that you typically put less money into them at 65 than another kind of annuity that would start distributions in the shorter term. If you live a long life, a QLAC offers significant rewards thanks to the compound interest that accrues over 15–20 years.
• Creditor Access to Inherited IRAs: Last year, if you inherited an IRA and later got into financial trouble, creditors couldn't touch the first $1.25 million in that kind of account when pursuing assets. Not anymore. The Supreme Court ruled, in 2014, that creditors can seek repayments via inherited IRAs.
• Social Security Raise: In 2015, the cost-of-living adjustment gets a 1.7% increase.
Taken together, these changes make 2015 almost entirely a year of incremental improvements and increased options for those of us building our post-work nest egg. New instruments are on the table for beginners — the MyRA, in particular —and also for the seasoned saver looking to leverage guaranteed income later in life. If you're willing to gamble on living to 85, you get a potentially significant advantage under the QLAC distribution scenario.
Remember, it's never too late to start saving and investing for retirement —and it's always a good idea to start to the year by catching up on how you can create your future income in wiser and more powerful ways. Bring on the New Year!
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