This article was originally published on Dec. 29, 2014. It was updated on Jan. 14, 2016.
Each year, the U.S. tax code undergoes some changes that can change the amount we owe the IRS come Tax Day. Staying on top of important changes can help you save more and avoid headaches and hassles. Here are some key changes to know about.
401(k) contribution limits rise
For 2014, the contribution limit for 401(k) retirement accounts was $17,500, plus another $5,500 "catch-up" contribution for those 50 or older. Those limits, which remained fixed from 2013 to 2014, rise to $18,000, along with a $6,000 catch up for those 50 and above, for 2015 -- and 2016. Employer-based retirement plans such as 401(k)s can be powerful savings builders, especially if you grab all the employer matching funds available. These numbers also apply to 403(b) plans, most 457 plans, and the federal government's Thrift Savings Plan. Note that to qualify for the catch-up contributions, you need to reach the minimum eligibility age of 50 at any time during 2015, so a Dec. 31 birthday does not decrease your eligibility.
Traditional IRA deduction eligibility widens
IRA contribution limits for 2015 and 2016 remain the same as in 2014, capped for most of us at $5,500, with a $1,000 catch-up contribution allowed for those 50 and older. But some other IRA rules change. Your ability to deduct traditional IRA contributions from your taxable income is limited by your earnings, and your allowable contributions are phased out as your income crosses a certain threshold. The limits have been made a bit more generous for 2015. From the IRS:
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $183,000 and $193,000, up from $181,000 and $191,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limits above generally rise by $1,000 for 2016.
Roth IRA eligibility widens, too
The Roth IRA's eligibility is also expanding a bit, with the AGI phaseout range rising from between $181,000 and $191,000 in 2014 to between $183,000 and $193,000 in 2015 for married-filing-jointly couples. For single folks and heads of households, the range rises from between $114,000 and $129,000 to between $116,000 and $131,000. (For 2016, the income limits generally increase by $1,000.) Those earning too much to contribute to a Roth IRA in the usual way might consider contributing to a nondeductible IRA and converting it to a Roth IRA.
IRA rollovers limited
Beginning in 2015, you can only execute one IRA rollover per year. A rollover involves taking money out of one IRA, holding it for fewer than 60 days, and then plunking it into another IRA. (This does not apply to trustee-to-trustee transfers, such as when you move an IRA account and its holdings from one brokerage or trustee to another.)
The myRA debuts
Another kind of retirement account is brand new, created by the U.S. Department of the Treasury and designed to be offered through employers. The myRA, or my Retirement Account, is small in scale but still useful, especially as a way to start socking money away for retirement. It charges no fees and offers modest, guaranteed growth, so you won't lose any money. You can start a myRA with must $25 and can add as little as $5 at a time, though more is better. (Contribution limits here are the same as for IRAs – currently $5,500, plus $1,000 for those 50 and up.) Once your account reaches $15,000 in value, it has to be rolled over into a private-sector Roth IRA.
SEP IRA contribution limits rise
Self-employed folks accumulating retirement money in a SEP IRA will see their contribution limits rise from $52,000 in 2014 to $53,000 in 2015 and 2016, with related compensation limits rising from $260,000 to $265,000. These numbers apply to solo 401(k)s, too.
SIMPLE IRA contribution limits rise
For 2015, you will be able to contribute as much as $12,500, up from $12,000 in 2014, plus a $3,000 catch-up contribution if you're 50 or older. It's the same for 2016.
Health Savings Account eligibility rules change
You might know that since 2013, you have been able to carry forward up to $500 in unused money each year from a flexible spending account. (An FSA lets you set aside pre-tax dollars to be used for qualifying healthcare expenses, but most of the money must be used within the year or is forfeited.) Beginning in 2015, though, if you carry forward any money, you will no longer be eligible for a Health Savings Account. This new rule confused many people, so the IRS clarified it in a memo. It's still complicated, though, so read more about it or perhaps consult a tax professional.
The penalty for not carrying health insurance rises
Let's not forget Obamacare. Its upside is making healthcare coverage affordable for millions of Americans, but it also penalizes those who opt out. For 2014, those who did not have "minimum essential coverage" by March 31, 2014, got socked with a penalty of 1% of income above the tax filing threshold, or $95 per adult and $47.50 per child (up to a family maximum of $285) – whichever is greater. For 2015, these jump to 2% of your income, or $325 per person and $162.50 per child, up to a family maximum of $975. These rise further in 2016 to 2.5% of income, with a maximum of $695 per adult, $347.50 per child, and $2,085 for families.
Other new tax laws for 2015 and beyond are worth learning about, too. But you now know about most of the big ones that are most likely to affect you.