2018 Contribution Limits and Tax Update

With each new year, minor adjustments are made to the amount you are allowed to contribute to your tax-advantaged accounts, like your 401(k), IRA, HSA, and more. This year brings on a few additional changes, as the new tax code is in effect.

I will briefly describe the changes that I think will have the greatest effect on your personal finances. As always, when considering changes in the amount you are saving in tax-advantaged accounts or your overall tax strategy, it is best to consult your accountant or financial planner.

At the end of the day, a new tax law will impact every American for better or for worse. You still have a number of ways to reduce your taxable income and save for the future.

2018 Contribution Limits

  • 401(k), 403(b), 457, and SARSEPs - $18,500

    • Catch-up contribution - $6,000

  • SIMPLE Plan - $12,500

    • Catch-up contribution - $3,000

  • IRA or Roth IRA - $5,500

    • Catch-up contribution - $1,000

  • Health Savings Account (Single) - $3,450

    • Catch-up contribution - $1,000

  • Health Savings Account (Family) - $6,900

    • Catch-up contribution - $1,000

2018 Estate and Gift Tax

  • Annual gift tax exclusion - $15,000

  • Estate and gift tax lifetime exclusion - $11,200,000

Tax Changes

  • New Tax Brackets

    • Taxable income rates reduced across the board, with the new tax brackets being 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

  • Standard Deduction & Personal Exemption

    • The standard deduction has been raised to $12,000 for Single and $24,000 for Married Filing Jointly. Meanwhile, the Personal Exemption of $4,050 per member of the household has been completely removed.

    • This will greatly reduce the number of households that itemize their tax deductions.

  • Doubled Child Tax Credit

    • The child tax credit has been raised from $1,000 to $2,000. Parents can receive one credit per dependent under age 17, and the income phase-out doesn’t start until $200,000 for Single and $400,000 for Married Filing Jointly.

  • Estate and Gift Tax Exclusion Increases

    • The annual gift tax exclusion has been raised to $15,000. A married couple can gift up to $30,000 to an individual tax free. The lifetime estate and gift tax exclusion has been raised to $11,200,000 per individual - eliminating any estate tax for the vast majority of Americans.

  • Home Equity & Mortgage Interest Changes

    • In past years, you could deduct interest on a home equity loan of up to $100,000. That deduction has now been removed. Furthermore, the mortgage interest deduction cap has been reduced from $1,000,000 to $750,000.

    • This makes it less attractive to carry home equity or mortgage debt (aka more attractive to pay it off).

  • State & Local Tax Cap

    • State, local, and property tax deductions are now capped at $10,000.

    • This will hurt households in high state or property tax areas.

  • Alternative Minimum Tax Changes

    • The Alternative Minimum Tax, or AMT, is applied to taxpayers when they take enough deductions to reduce their regular income tax below the AMT level of 26%. The income threshold has been raised to $70,300 for Single and $109,400 for Married Filing Jointly.

    • This effectively reduces the number of households that will be subject to AMT.

  • Public Charitable Contributions Increase

    • Cash donations to public charities can receive a full deduction up to 60% of the taxpayer’s Adjusted Gross Income (AGI).

    • With the now higher standard deduction, it makes it more difficult to actually claim a charitable contribution. However, you may consider “lumping” multiple year charitable gifts into one year to maximize your deduction benefit.

How will the new tax changes impact your financial life? After you file your 2017 tax return, schedule time to meet with your accountant and/or financial planner to get an accurate update. Instead of complaining about the new tax bill if it affects you negatively, find new ways to take advantage of the deductions that are still available and max out your retirement account contributions.

Source: Congress.gov


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