Changes to the tax law made in 2017 are now in effect and the tax season is in full swing. With all the media attention and speculation, few people know what the tax changes are and how it will affect them or if it will affect their retirement income. The following are a few key changes and what they mean for you and your clients:
- Increased contributions for retirement. What: if your client has a 401(k), 403(b) or a 457 (check which type) they can contribute $500 more money a year, raising the maximum from $18,000 to $18,500.
What this means: More money in a retirement plan means more money for the future, a definite win for you and your clients with this type of retirement. Use this information as you work with your clients to maximize their retirement contributions.
- Standard deduction changes. What: married couples filing jointly have an increased standard deduction of $24,000 (up from $13,000) while taxpayers filing separately have a $12,000 deduction and head of household filers have an $18,000 deduction.
What this means: The higher the deductions, the less money owed on taxes. This is a good thing for everyone. This could also mean more money for clients to invest in their retirement funds.
- New income tax rates. What: For those with incomes of $500,000 or more ($600,000 for married filing jointly) a new, 37% rate is in effect.
What this means: For those clients in the top earning bracket, this slight decrease in taxes will allow for more take home income. This is an appropriate time to contact high earning clients to make changes to their retirement plans and add maximize their contributions.
- Roth IRA contributions. What: Income limits for contributing to a Roth IRA have been raised to $135,000 for single filers and $199,000 for married, filing jointly.
What this means: Expanded income brackets will allow more people and couples to start and contribute more to Roth IRA’s which are a great starter product for retirement savings.
With all the new tax law changes, whether they apply to your clients or not, it’s good to get in touch and go over their retirement plans to make sure they are getting the most out of their portfolio.