Important Tax Changes For 2015
The IRS has announced a few important changes that will become effective January 1st, 2015. Here are the highlights that may impact your plan for the coming year.
Limit on IRA Rollovers
Starting in January, there will be a new restriction on IRA to IRA rollovers. Taxpayers will only be able to make one rollover every 12 months; additional rollovers will count as withdrawals. This means you could owe income tax plus the 10 percent early withdrawal penalty on the money taken out.
This new restriction only applies to regular rollovers when the taxpayer receives money and has 60 days to transfer the funds to another IRA. There is no limit on rollovers when the money directly transfers from one trustee to another or on rollovers that are part of a Traditional to Roth IRA conversion.
Inflation Adjustment to 401(k), 403(b) Contributions
Workers with a 401(k) or 403(b) will be able to save a little bit more per year starting in 2015. The IRS has increased the elective salary deferral limit to $18,000, up from $17,500 in 2014. The IRS also increased the limit for catchup contributions, extra contributions that workers who are 50 or older can make in retirement plans. The catchup contribution limit will be $6,000 in 2015, up from $5,500. Workers who are 50 or older will be able to contribute up to a maximum $24,000 per year into their 401(k) or 403(b).
No Increase for IRA Contributions but Higher Income Cutoffs
The IRS has not made an inflation adjustment for IRA contributions. The annual contribution limit will remain $5,500 in 2015 while the catchup contribution limit will remain $1,000. However, the IRS has increased the income cutoffs for both Traditional and Roth IRAs. The income cutoff to use a Roth IRA has been increased by $2,000. In 2015, taxpayers can be eligible for this type of retirement account if they are single and have an adjusted gross income (AGI) of less than $131,000 or are married and have an AGI less than $193,000. However, the amount a taxpayer can contribute starts phasing out if they are single and have an AGI over $116,000 or are married and have an AGI over $183,000.
The IRS has also increased the income limits for the Traditional IRA tax deduction for workers with a retirement plan at work. Taxpayers can use the Traditional IRA deduction if they are single and have an AGI of less than $71,000 or are married and have an AGI of less than $118,000. The deduction will start phasing out for workers who are single with an AGI over $61,000 or are married with an AGI over $98,000.
While there aren’t too many tax changes in 2015, they are still important to note for retirement and tax planning. Having a good roadmap is key to planning your financial future.