2015 Retirement Account Changes You Want To Know About

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2015 will bring several changes, and in order to maximize your tax deductions, you want to stay on top of every edge you can take advantage of. When it comes to individual retirement accounts (IRA), it's all about tax savings. There's no other reason to invest in an IRA aside from the tax savings.  That's why, I would advise clients to make sure they have explored all their retirement options before investing in any retirement program. 

Because IRA have been marketed so profoundly, many investors automatically think they should put every dime they can afford every year into an IRA, but that's not always the best option. And if you didn't think it was confusing enough with two IRA choices, the traditional and newer Roth IRA, now comes along the baby sister called the myRA.  The myRA is an IRA built on a Roth IRA platform that isn't connected to your employer.

So now families planning on retirement have three choices, and at least with the traditional and Roth IRA, there are many choices within an IRA vehicle. For example, self-directed IRAs, where the investor opens an IRA account and decides which investments to allocated the account into. IRAs can include stocks, bonds, options, futures, real estate, gold, local businesses, and much more. Usually, most self-directed IRAs don't venture much further than the stock market, but it's important to know that you're not limited to only buying stocks.

1.    Ok, so let's first address the new myRA. It's sold by the government and marketed towards lower income working people. Currently, a myRA can have a maximum balance of $15,000 for up to 30 years. After reaching either limit, the account needs to roll over into a private-sector Roth IRA. Contributions are the same with Roth IRAs, up to $5,500 per year (or $6,500 per year for individuals who will be 50 years of age or older at the end of the year). The myRA is guaranteed by the United States Treasury because it invests in the same government securities fund that federal employees receive in their retirement accounts.According to the Treasury's website, the average annual return was 3.4% from December 2003 to December 2013.

While I can understand the attractiveness of having an account guaranteed for many, my initial suspicion was  it's not a good deal (for the investor). My concern is quickly confirmed when I examine the performance of the S&P 500 during the same period. The return on a simple S&P 500 investment, such as the S&P 500 ETF "Spider" with the ticker symbol SPY isn't double, but considerably higher at 5.28%. In fact, it's hard for me to imagine a real life situation where the myRA is the best option for anyone. So, I won't spend any more time on it. 

2.    The limit you can contribute to your 401(k) is increasing $500, and for those over 50 trying to maximize their retirement account, good news, the increase also applies towards catch-up limits. If you're age 50 or over by the end of the calendar year, your catch-up contribution limit moves from $5,500 in 2014 to $6000 in 2015. 

3.    The amount you can contribute to your IRA remains unchanged at a maximum of $5500 or $6500 for catch-up qualified investors. Remember, you can contribute to an IRA for tax year 2014 into 2015 (until you file your tax return, or April 15th, 2015, whichever comes first), but you must turn 50 in 2014 for the Catch-up limit to possibly impact your legal limit.

4.    You can make more money in 2015 and still claim an IRA deduction on contributions. The tax deduction phase out for making an IRA contribution increases $1,000 from $60,000-$70,000 to $61,000-$71,000 for individuals, and up $2,000 from $97,000 to $116,000, to $98,000 to $118,000 for couples in 2015. Workplace retirement plans impact your deductibility limits, so be sure to talk to a trusted advisor before making any decisions. 

5.    Fans of Roth IRAs will be pleased to know the income limits increase $2,000 in 2015. Many advisors love Roth IRAs, and they have an attractive thesis based on current tax law, namely the ability to pay taxes at a (hopeful) lower rate during retirement years. I'm not so sure that's the best avenue without considering possible changes in tax law. This is especially true when calculating the impact on Social Security benefits. How Roth IRA distributions are treated in 10,15, 20 years or more is anyone's guess. Because of the greater amount of uncertainty, other vehicles of investment including annuities, real estate, traditional IRAs, and others may be better suited for your desired objective. 

6.    If you had a down year in your business or for whatever reason didn't earn more than what's considered low to moderate income, the Saver's Credit tax credit may be worth looking at. It's a tax credit that can be worth as much as $1,000 for individuals and $2,000 for couples. The definition of moderate income reaches most workers at a relatively high adjusted gross income (AGI) of $30,500 for singles, $45,700 for heads of households, and $61,000 for married couples in 2015. 

Unlike the myRA, the Saver's Credit is one of the best reasons to invest in terms of return from the government. For readers wanting to know the 2014 limits, they're $30,000 for singles, $45,000 for head of household, and $59,000 for married couples. The amount of the credit varies from 10%, up to 50% of the amount you tuck away into your retirement account, depending on your AGI. 

On top of the tax credit, contributions are deducted from income (tax deferred ), meaning taxpayers basically get to double-dip, jump starting the return of investment. In short, if you qualify for the Saver's Credit, you want to take full advantage of it.

7. Cost of living expense increases will result in Social Security benefits rising 1.7% in 2015. At the same time, the portion of your income that is subject to Social Security tax will also increase about 1.3% or $1,500 to $118,500

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