Make Note of These Cost-of-Living Adjustments for 2018

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Each year, the IRS makes cost-of-living adjustments (or COLAs) to dollar limitations that apply to qualified retirement accounts and Social Security. With the new year right around the corner, now is a good time to review these adjustments for 2018 and assess their potential impact on your financial plans.

COLAs Affecting Retirement Accounts

If you participate in a 401(k), 403(b) or 457 retirement plan, you will be able to sock away a little bit more money for retirement next year. The annual contribution limit for these plans will increase by $500 in 2018 to $18,500, or $24,500 if you’re age 50 or over.

However, the annual contribution limit for Individual Retirement Accounts (IRAs) is not going up next year. It will remain unchanged at $5,500, or $6,500 if you’re age 50 or over.

But there is some good news when it comes to IRA contributions next year. The income phase-out range for determining whether or not you can deduct contributions to traditional IRAs if you or your spouse is covered by a workplace retirement plan is going up as follows:

  • For single taxpayers covered by a workplace retirement plan, the range is rising from $62,000-$72,000 to $63,000-$73,000.
  • For married couples filing jointly where the spouse making the contribution is covered by a workplace retirement plan, the range is rising from $99,000-$119,000 to $101,000-$121,000.
  • For married couples filing jointly where the spouse making the contribution is married to someone who covered by a workplace retirement plan, the range is rising from $186,000-$196,000 to $189,000-$199,000.

Eligibility to make contributions to a Roth IRA phases out at certain income levels. These income phase-outs are going up next year as follows:

  • For single taxpayers and heads of households, the range is rising from $118,00-$133,000 to $120,000-$135,000.
  • For married couples filing jointly, the range is rising from $186,000-$196,000 to $189,000-$199,000.

The income limits for claiming the Retirement Savings Contribution Credit (also known as the Savers Credit) are also going up next year as follows:

  • For single taxpayers, the income limit is rising from $31,000 to $31,500.
  • For heads of households, the income limit is rising from $46,500 to $47,250.
  • For married couples filing jointly, the income limit is rising from $62,000 to $63,000.

The limit on the total annual benefit you can receive from a defined benefit pension plan next year is rising from $215,000 to $220,000. And the limit on the total annual benefit you can receive from defined contribution plans next year is rising from $54,000 to $55,000.

COLAs Affecting Social Security

If you receive Social Security or Supplemental Security Income (SSI) benefits, your benefit amount will increase 2% in 2018. The maximum Social Security benefit you can receive if you retire at your full retirement age is rising from $2,687 to $2,788 next year.

Meanwhile, if you are still paying into Social Security and Medicare, your tax rates will remain the same next year: 6.2% for Social Security (up to a maximum level of taxable earnings) and 1.45% for Medicare, for a combined rate of 7.65%. Note, however, that the maximum level of taxable earnings to which Social Security (but not Medicare) taxes apply is rising from $127,200 to $128,400.

Also note that if you’re self-employed, these tax rates double to 12.4% and 2.9%. This is because employers pay half of Social Security and Medicare taxes for their employees — but if you’re self-employed, you are the employer and must pay the full amount yourself. In this case, the tax is referred to as the self-employment tax.

Please contact us if you have more questions about these annual cost-of-living adjustments and how they could impact your personal finances.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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