2015 Retirement Plan & Social Security News

Elective Contributions to IRAs, 401(k)s and Other Qualified Plans

The IRS announced new limits for IRA, pension and other contributions for 2015.  Here are the highlights:

  • The maximum limit for contributions to IRA’s remains at $5,500 for 2015.
  • If you are age 50 or older, you can contribute a maximum of $6,500 for 2015, which remains unchanged from 2014. You can make contributions to your IRA for 2014 up until April 15, 2015.
  • Elective deferral contribution limits to 401(k), 403(b) and 457(b) plans are increased to $18,000 for 2015, up from $17,500 for 2014.
  • Catch-up contributions for those aged 50 and over increase to $6,000, for 2015, up from $5,500 in 2014.

Traditional IRA contributions, for participants in employer plans, are phased out for 2014 as follows:

  • For single filers and heads of household with 2015 modified adjusted gross income (AGI) between $61,000 and $71,000; this is up from $60,000 to $70,000, which had been in effect for 2014.
  • For married couples filing jointly:
    • If each spouse makes a contribution and each is covered by his/her employer’s plan, the phase-out range is $98,000 to $118,000 in 2015, up from $96,000 to $116,000, for 2014.
    • For a married taxpayer who is not an active participant in an employer plan, but is married to someone who is, the deduction for an IRA contribution is phased out if the couple’s joint income is between $183,000 and $193,000, up from $181,000 to $191,000 for 2014.

Roth IRA contribution phase-out limits also have some changes:

  • For single filers and heads of household, the income phase-out range is AGI between $116,000 to $131,000 for 2015, up from $114,000 to $129,000 in 2014.
  • For married couples filing jointly, the AGI phase-out range for 2015 is $183,000 to $193,000, up from $181,000 to $191,000 for 2014.
  • For married individuals who file separately and participate in an employer sponsored plan, the phase-out range remains at $0-$10,000.

There are no income limits for converting a traditional IRA into a Roth IRA account. However, there may be income tax consequences depending on your income tax bracket and other factors.

Benefit Plan Contribution Limits: If you participate in a company plan in 2015, there are new limits for 2015 as follows:

  • The maximum amount that an individual can contribute to a plan, through both employer and employee contributions, remains at the lesser of (i) 25% of the employee’s total compensation, or (ii) $53,000. This dollar amount is a $1000 increase from 2014.
  • The annual benefit limit that can be funded in a defined benefit pension plan remains unchanged at $210,000, for 2015.
  • For participants in a Simplified Employee Pension (SEP) plan, the minimum threshold increases to $600, up from $550 in 2014.
  • The limitation for SIMPLE retirement account contributions  increases $500 to $12,500 for 2015.
  • The maximum annual compensation that can be taken into account for retirement plan purposes is increased from $260,000 in 2014 to $265,000 in 2015.
  • The compensation threshold for determining a Highly Compensated Employee (HCE) increases $5,000 to $120,000 for 2015.
  • The limit used in the definition of a “key” employee in a “top-heavy” plan remains unchanged from 2014, at $170,000.

The maximum deferral for participants in the federal government’s Thrift or Savings Plans and Tax Sheltered Annuities increases to $18,000 for 2015, up from $17,500 for 2014.

These figures are issued annually by the IRS and were published on October 23, 2014. Other changes not covered here include: limitation on maximum account balances in ESOPs (Employee Stock Ownership Plans), fringe benefits paid to “control employees,” savings contribution credits for lower income taxpayers and special elections for single employer plans.

A Note about Social Security Wages and Self Employment Income

Employers and employees each pay 7.65% of Social Security or FICA taxes on wages paid to employees. Of this amount, 6.2% represents the “Old Age and Survivors Disability Insurance (OASDI) portion of FICA taxes and 1.45% represents the health insurance portion.  The health insurance portion is paid on all wages paid to an employee, while the OASDI portion is only paid on amounts up to what is known as the Social Security Wage Base.

  • For 2015, the Social Security Wage Base increases to $118,500 of wages, up from $117,000 in 2014.
  • High earners (singles and heads of household with wages above $200,000 and married filing joint filers with wages above $250,000) will pay an additional 0.9% Medicare tax on their wages in excess of these thresholds.
  • Self-employed persons are also subject to this additional 0.9% Medicare tax on earned income. If an individual or married couple has both wages and self-employment income, the 0.9% tax is imposed on the combined income in excess of the limits.

There is some good news for recipients of social security benefits:

  • Those who receive Social Security and “Supplemental Security Income (SSI)” benefits will receive a 1.7% increase in 2015.
  • The Medicare Part B premiums, which are typically deducted from social security benefits, will remain the same for 2015.

Please feel free to contact Susan G. Parker, Esq. PC if you have any questions or concerns about your taxes, retirement savings, estate planning or business planning. We can be reached at (914) 923-1600.