Every year brings a number of changes in various financial rules and regs that impact our personal financial planning. What follows is our annual guide to some of the more significant changes that have been announced for the New Year.
If you participate in a 401(k), 403(b), 457(b) or the federal government’s Thrift Savings Plan, you can contribute $19,000 in 2019—up $500 from the limit in 2018. Participants age 50 or older can add another $6,000—the same as it was in 2018.
Those contributing to an IRA can contribute up to $6,000, a $500 increase and the first boost since 2013. People age 50 and older can add another $1,000—the same as in 2018.
IRA contributors who are impacted by income phase-outs—those covered by a workplace retirement plan or married to someone who is—can make a bit more money in 2019 and still either deduct their full contribution to a traditional IRA or make a contribution to a Roth IRA. The details are available on the IRS web site.
Health Savings Accounts
For those with a high-deductible health insurance plan, singles can save a tax-deductible $3,500 in 2019 in a Health Savings Account—$50 more than in 2018. Families can save $7,000—up $100 from 2018. If you are 55 or older, or will turn 55 in 2019, you can save an additional $1,000.
In order to be able to use a health savings account, your health insurance deductible must be at least $1,350 for singles and $2,700 for families—unchanged from 2018.
Remember, unused money in your HSA can be carried over from year to year. An HSA can even serve as an additional tax-advantaged way to save for retirement expenses.
There’s more information about HSA rules and regs here.
If you’re eligible to contribute to a flexible spending account where you work, the IRS has increased the contribution limit to $2,700 for 2019—up from $2,650 last year. In 2014, the IRS loosened the use-it-or-lose-it restriction that applied to FSAs, giving employers the freedom to allow employees to carry over up to $500 of unused money from one year to the next or to use up unspent money in a two-and-a-half month grace period at the start of a new year. Employers are not obligated to offer either benefit, so check with your HR department to find out about your company’s policies.
Tax brackets and standard deductions
2019 tax brackets have been adjusted for inflation. You can see all of the planned changes in this Forbes article.
Remember, 2018 ushered in a thoroughly revised tax code, with lower rates in five of the seven tax brackets, much higher standard deductions (as the Forbes article details, even those are increasing a bit further in 2019), the elimination of personal exemptions, and an expanded child tax credit.
Social Security and Medicare
While the Social Security withholding rate will remain as it has been—6.2% of income for employees and 6.2% for employers, the maximum amount of earnings subject to Social Security tax in 2019 will increase from $128,400 to $132,900.
The Medicare withholding rate will remain as it has been—1.45% of income paid by employees and 1.45% paid by employers. There is no limit on the amount of income subject to this tax.
High earners will continue to be subject to two additional Medicare taxes thanks to provisions in the Affordable Care Act. First, an additional .9% Medicare payroll tax is owed on income above $200,000 for singles or $250,000 for married couples filing jointly. Those income thresholds are unchanged from 2018.
Second, anyone making more than the income thresholds just mentioned may be subject to an additional 3.8% Medicare tax on net investment income, including interest, dividends, capital gains, the taxable portion of annuity payments, and more. This tax is owed on the lesser of net investment income for the year or the extent to which modified adjusted gross income (MAGI) exceeds the thresholds mentioned above. The tax is not owed if MAGI does not exceed those thresholds. If income does exceed those thresholds, the tax is only owed to the degree that there is net investment income.
There’s more information about these two additional Medicare taxes for high earners here.
Those receiving Social Security will see a 2.8% cost-of-living increase in their checks in 2019. That’s the largest increase in seven years.
The IRS hasn’t issued new mileage rates for 2019 yet. In 2018, if you used your vehicle for business purposes (not including commuting), you could deduct 54.5 cents a mile. The deductible rate for medical or moving purposes was 17 cents per mile and the rate when using your vehicle for charitable purposes was 14 cents per mile.
Very few households have to worry about federal estate taxes anymore due to high estate tax exemptions. In 2019, that exemption is $11.4 million per person—up from $11.18 million in 2018. Married couples can make use of twice that amount.
As the markets get a bit wobbly, keep in mind that one of the key factors you can control is how much you contribute to your retirement plan and, if applicable, a health savings account. How will the higher contribution limits or other changes mentioned above impact your financial planning for 2019?