Retirement Savings Trends: What’s Changing (and What Isn’t) for 2017

In order to stay on top of retirement savings rules, regulations and limits, which can change yearly, requires diligence. Here we examine a few of the latest rule changes and trends to help you.

Retirement savings on the rise

More than 20 percent of those surveyed put away more for retirement in 2016 than the previous year.[1] Younger generations are taking the lead in savings, with millennials posting the largest increase in their savings rate of any age group.[2]

IRA and 401(k) contribution limits remain the same [3]

Contribution limits for 401(k) plans and individual retirement accounts (IRA) will remain unchanged for 2017, but income limits to qualify for tax breaks will change (see more below).

Income limits for IRAs increase [3]

Many employees with employer-sponsored retirement plans can also make tax-deferred IRA contributions. For 2017, individuals earning up to $62,000 or couples earning up to $99,000 can defer income tax on contributions of up to $5,500, or $6,500 at age 50 or older. (This is an increase from the 2016 limits of $61,000 for individuals and $98,000 for couples.) However, the tax deduction is being phased out for those earning between $62,000 and $72,000 ($99,000 to $119,000 for couples), in 2017. If you’re saving for retirement and don’t have an employer-sponsored retirement plan but your spouse does, the tax deduction is reduced if your income is $186,000 to $196,000. Employees without access to an employer-based retirement plan can claim a deduction for traditional IRA contributions regardless of their earnings.

Larger Roth IRA income cutoffs [3]

For 2017, individuals earning less than $118,000 (and couples earning less than $186,000) can make Roth IRA contributions. But individuals earning over $133,000 (and couples earning over $196,000) in 2017 are no longer Roth-eligible.

Higher income ceiling for the savings credit [4]

Employees earning less than $31,000 in 2017 ($62,000 for couples) may still qualify for the saver’s credit, a tax credit worth between 10 and 50 percent of 401(k) and IRA contributions up to $2,000 for individuals and $4,000 for couples. This change will allow savers to earn $250 more than the previous year and still qualify for the tax credit.

Using HSAs as a retirement savings vehicle [5]

Available since 2004, health savings accounts (HSA) are now beginning to be viewed as sustainable retirement vehicles and not just used for medical expenses. The primary purpose of these savings accounts was to help with out-of-pocket medical expenses, if you have a high-deductible health plan. Annual contributions are $3,400 for those with individual health plans and $6,750 for workers with family plans. But unlike Flexible Spending Accounts, your HSA balance can be carried over each year even if you change jobs. Contributions are tax deductible and grow tax-free, and money taken out for qualified medical expenses are tax free, at any time.  After age 65, you can withdraw money to pay for non-medical expenses without incurring the 20% tax penalty, but the funds will be taxed as income (similar to an IRA withdrawal).