A new year often means new goals, new opportunities and new commitments. When it comes to your finances, it can also mean new rules and requirements that may affect how you manage your money. As we face 2015, the changes that affect most people are fairly minor. However, it's best to be informed. Knowledge of even a small change may affect your economic decisions in the coming year -- and may even mean a bit more money in your pocket.
Changes to help you save moreTo me, anything that helps you save more for retirement is a plus, so there's a bit of good news for retirement savers.
- Higher contribution limits for employer-sponsored retirement plans -- If you have a 401(k) or 403(b), you can now save a maximum of $18,000 a year, an increase of $500. Maximum catch-up contributions for those 50 and older have also increased to $6,000, giving you a possible annual grand total of $24,000. Even if these limits are a bit out of reach, use them as a motivation to increase your own contribution to the maximum you can afford.
- Higher income cutoffs for a Roth IRA -- If income limits have kept you from opening a Roth IRA, now may be your chance to take advantage of the future tax-free withdrawals a Roth can offer. Income limits for 2015 are $183,000-$193,000 for married filing jointly (up from $181,000-$191,000); $116,000-$131,000 for single filers (up from $114,000-$129,000).
For the record, contribution limits for traditional and Roth IRAs remain the same: $5,500 maximum annual contribution with a $1,000 catch-up for people age 50-plus. Speaking of IRAs, I want to remind anyone who doesn't have a 401(k) and has put off opening an IRA that the myRA, introduced late last year, can be an excellent way to start saving.
You can open a myRA with as little as $25, ongoing contributions can be as low as $5, and the money is automatically withheld from your paycheck. Savings are invested in the Thrift Savings Plan Government Securities Investment Fund, which is very secure, but provides a very low return. Similar to a Roth, the myRA has income limits (less than $131,000 for individuals, $193,000 for married filing jointly) and withdrawals are tax-free if you are age 59½ or older and five years have passed since your initial contribution to the account. Once your myRA balance reaches $15,000, you must roll it over to another investment -- further reinforcing the concept that although the myRA can help individuals kick-start their savings, it is not an adequate long-term retirement savings solution.
Changes that may cost you a bit moreYou'll also want to be aware of a couple of changes that could take a bite out of your income.
- Social Security taxes -- The income limit for paying Social Security taxes has increased from $117,000 to $118,500, which means an additional $1,500 is subject to the 6.2 percent tax (12.4 percent if you're self-employed).
- Rules regarding IRA rollovers -- In the past, some individuals mistakenly believed that they could make an unlimited number of 60-day IRA rollovers. In other words, they thought that they could take a distribution from any number of IRAs and pay no taxes as long as they put that money back into another IRA within 60 days. But in 2014, the U.S. Tax Court set the record straight. According to this ruling, it is clear that we are limited to one 60-day rollover per 12 months, no matter how many IRAs we may own. A second rollover in the same year could trigger income taxes as well as a 10 percent penalty. (Note that this ruling does not apply to trustee-to-trustee transfers, or a transfer between financial institutions. You can continue to do as many of those as you like.)
Social Security and Medicare changes for better -- and worseFor retirees, there's a plus and a potential minus:
- Social Security benefits increase -- The cost-of-living increase (COLA) for 2015 Social Security benefits is 1.7 percent. This will be reflected in your January benefit payment. The monthly maximum benefit at full retirement age has also increased to $2,663.
- Medicare Part A deductible goes up -- On the downside, the deductible for hospital stays under Medicare Part A has increased 3.6 percent to $1,260. Co-insurance payments for hospital stays past 60 days have also gone up -- another good reason to look into a Medi-Gap policy. Fortunately, the basic premium and deductible for Medicare Part B are unchanged.
Small tax changes worth notingLooking ahead, there are some inflation-adjusted tax benefits that will apply to tax year 2015:
- The standard deduction goes up to $6,300 for singles; $12,600 for married filing jointly.
- The personal exemption also increases to $4,000, subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married filing jointly). It phases out completely at $380,750 ($432,400 for married filing jointly.)
- The estate tax exclusion rises to $5.43 million (from $5.34 million). However, the gift tax exclusion stays at $14,000.
Don't get lost in the details
Changes aside, I encourage you to keep a big-picture perspective as you head into the new economic year. Know where your money is going, save as much as you can, and make sure your portfolio still reflects your goals and timeline. With the big picture in focus, you can more easily manage the details to your advantage.
Looking for answers to your retirement questions? Check out Carrie's new book, "The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions."
This article originally appeared on Schwab.com. You can e-mail Carrie at firstname.lastname@example.org, or click here for additional Ask Carrie columns. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.
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