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 refresh your financial self-improvement goals.
As 2015 gets under way, understanding how best to 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.
An accessible addition to the retirement-planning ecosystem, especially for younger investors and those just starting out. For an initial contribution as small as $25, you're creating a retirement savings bond that's backed by the U.S. Treasury. There are no fees and no risk that the bond will lose value, and you can continue to contribute at low amounts should your budget continue to dictate modest savings.
401(k) contribution limit increase
This year introduces a small hike in the contribution limit to $18,000 from $17,500. For older planners, the catch-up contribution limit also went up a bit -- to $6,000 from $5,500.
IRA contribution limit increase
While many IRA limits remain unchanged, this year SIMPLE IRAs see a modest increase of $500 to the contribution limit, making the total now $12,500. Catch-up contributions are also up $500, to $3,000 from $2,000. Note, also, that employers can contribute $1,000 more to SEPs in 2015; the limit increased to $53,000 this year.
IRA contribution phase-out changes
The government has raised the income limits that prompt a phase-out for investors seeking to contribute to their IRAs. Those whose earnings fall within the phase-out range can make reduced contributions to IRAs, while those above the upper limit cannot contribute at all. The upshot of the limit raises is that more individuals can enjoy the benefits of saving money in these accounts.
The income limits are as follows:
- Traditional IRA -- single with a workplace plan: $61,000-$71,000 (up $1,000 from 2014).
- Traditional IRA -- married filing jointly (when contribution is made by spouse with a workplace plan): $98,000-$118,000 (up $2,000 from 2014).
- Traditional IRA: married filing jointly (when contribution is made by spouse without a workplace plan): $183,000-$193,000 (up $2,000 from 2014).
- Roth IRA: married (filing jointly): $183,000-$193,000 (up $2,000 from 2014).
- Roth IRA: single: $116,000-$131,000 income limit (up $2,000 from 2014).
IRA rollover limit
The days of the government's lenient rules on moving around IRA funds appear to be over. As of Jan. 1, retirement planners get one 60-day IRA rollover per year free of taxes and penalties. (These are the rollovers in which you withdraw funds as a check and 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 funds being rolled over between workplace plans. So if you change jobs in 2015, your employers can transfer retirement accounts without incurring expenses each time.
Annuity distribution options
New regulations from the Department of the Treasury allow required minimum distributions to start later in life, opening a new frontier for retirees. Those who take a qualified longevity annuity contract -- known as a QLAC, which is typically issued by an insurance company -- 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 it at 65 than you would into 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, Social Security benefits get a 1.7% increase to adjust for cost of living.
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 both for beginners and for seasoned savers looking to leverage guaranteed income later in life.
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!