Anyone who's bought groceries, filled their gas tank or paid insurance premiums recently would probably be surprised to learn that, according to Department of Labor's Consumer Price Index for Urban Consumers (CPI-U), the rate of inflation is relatively flat – only 1.2 percent from September 2012 to September 2013.
That's bad news for people who were hoping to boost their contributions to an IRA, 401(k) plan or other tax-advantaged retirement savings accounts, since the IRS uses the CPIU's September year-over-year performance to determine whether or not to make cost-of-living adjustments to many of the retirement contributions you and your employer can make in the following year.
Here are highlights of what will and won't change in 2014:
Defined contribution plans. The maximum allowable annual contribution you can make to a workplace 401(k), 403(b), 457(b) or federal Thrift Savings plan remains unchanged at $17,500. Keep in mind these additional factors:
Individual Retirement Accounts (IRAs). The maximum annual contribution to IRAs remains the same at $5,500 (plus an additional $1,000 if 50 or older – also unchanged from 2013). Maximum contributions to traditional IRAs are not impacted by personal income, but if your modified adjusted gross income (AGI) exceeds certain limits, the maximum amount you can contribute to a Roth IRA gradually phases out:
Keep in mind these rules for deducting traditional IRA contributions on your federal tax return:
Retirement Savers' Tax Credit. As an incentive to help low- and moderate-income workers save for retirement through an IRA or company- sponsored plan, many are eligible for a Retirement Savers' Tax Credit of up to $1,000 ($2,000 if filing jointly). This credit lowers your tax bill, dollar for dollar, in addition to any other tax deduction you already receive for your contribution.
Qualifying income ceiling limits for the Savers' Tax Credit increased in 2014 to $60,000 for joint filers, $45,000 for heads of household, and $30,000 for singles or married persons filing separately. Consult IRS Form 8880 for more information.
Jason Alderman directs Visa's financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.