2015 401k 403b IRA Contribution Limits

Understanding your retirement

[Updated on October 22, 2014. New CPI number confirmed projections made here two months ago.]

The government released the Consumer Price Index for September 2014. Inflation is higher this year but still low by historical standard. The new inflation number confirmed my projection of the 2015 contribution limits for 401k/403b/457 plans. The contribution limit for traditional and Roth IRAs was finalized in September, which only depends on the inflation numbers through August.

401k/403b/457 Elective Deferral Limit

401k/403b/457 contribution limit will increase by $500 to $18,000 in 2015. If you are age 50 or over, the catch-up contribution limit will also increase by $500 to $6,000.

If you are self-employed, the total employer plus employee contributions to all defined contribution plans by the same employer will go up by $1,000 from $52,000 to $53,000 in 2015.

SIMPLE 401k and SIMPLE IRA Contribution Limit

SIMPLE 401k and SIMPLE IRA plans have a lower limit than 401k plans. It will also go up by $500 to $12,500 in 2015. If you are age 50 or over, the catch-up contribution limit will also increase by $500 to $3,000.

Traditional and Roth IRA Contribution Limit

Traditional and Roth IRA contribution limit will stay the same at $5,500 in 2015. The age 50 catch up limit is fixed by law at $1,000.

Deductible IRA Income Limit

The income limit for taking a full deduction for your contribution to a traditional IRA while participating in a workplace retirement will go up by $1,000 for singles to $61,000 in 2015; up by $2,000 to $98,000 for married filing jointly. The deduction completely phases out when your income goes above $71,000 for singles and $118,000 for married filing jointly, up by $1,000 and $2,000 respectively in 2015.

The income limit for taking a full deduction for your contribution to a traditional IRA when you are not participating in a workplace retirement but your spouse is will go up by $2,000 for singles to $116,000 in 2015; also up by $2,000 to $183,000 for married filing jointly. The deduction completely phases out when your income goes above $131,000 for singles and $193,000 for married filing jointly, both up by $2,000 in 2015.

Roth IRA Income Limit

The income limit for contributing the maximum to a Roth IRA will go up by $2,000 for singles to $116,000 in 2015; also up by $2,000 to $183,000 for married filing jointly. You can’t contribute anything directly to a Roth IRA when your income goes above $131,000 for singles and $193,000 for married filing jointly, both up by $2,000 in 2015. You can still do a backdoor Roth IRA in such case.

All Together

2014 2015 Increase
Limit on employee contributions to 401k, 403b, or 457 plan $17,500 $18,000 $500
Limit on age 50+ catchup contributions to 401k, 403b, or 457 plan $5,500 $6,000 $500
Traditional and Roth IRA contribution limit $5,500 $5,500 None
Traditional and Roth IRA age 50+ catchup contribution limit $1,000 $1,000 None
SIMPLE 401k or SIMPLE IRA contributions limit $12,000 $12,500 $500
SIMPLE 401k or SIMPLE IRA age 50+ catchup contributions limit $2,500 $3,000 $500
Maximum annual additions to all defined contribution plans by the same employer $52,000 $53,000 $1,000
Highly Compensated Employee definition $115,000 $120,000 $5,000
Deductible IRA income limit, active participant in workplace retirement plan, single $60,000 – $70,000 $61,000 – $71,000 $1,000
Deductible IRA income limit, active participant in workplace retirement plan, married filing jointly $96,000 – $116,000 $98,000 – $118,000 $2,000
Deductible IRA income limit, spouse is active participant in workplace retirement plan $181,000 – $191,000 $183,000 – $193,000 $2,000
Roth IRA income limit, single $114,000 – $129,000 $116,000 – $131,000 $2,000
Roth IRA income limit, married filing jointly $181,000 – $191,000 $183,000 – $193,000 $2,000

[Photo credit: Flickr user SalFalko]

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Comments

  1. KD says

    Thanks for the heads up! Prospect lower take home on account of maximizing contributions to increased 401k limit seems closer.

  2. John says

    Don’t forget the Normal Retirement Age/ Pre-Retirement Catch Up provision for the 457b accounts. This will allow up to a $36,000 contribution.

  3. JD says

    I have never been able to figure out the actual calculation used to derive the 401k and catch-up contribution limits. On my own I *think* the calculation is based on the following:

    1) Uses the 2005 3Q CPI-W average (192.7) as a basis with a 15,000 contribution limit.
    2) compares the current 3Q CPI-W average to the basis, and adjust the limit accordingly. However, the limits can only increase in increments of $500, and the limit is not increased unless the calculation is within $50 of the next limit. (In other words, if the exact calculation shows 17,929, the limit would be 17,500, not 18,000.

    Is that correct?

    In any case I agree that based on the Jul and Aug CPI-W numbers, it virtually guaranteed that we will have 401k contribution limit of 18,000 and Catch-up Provision limit of 6,000.

    • Mathematician says

      Here’s a simple calculation for age 50+ catchup contributions. Just take the regular 401k/403b (or 457b) max contribution, divide by 3, and round down to a multiple of $500.

      This works because they started at $15000 and $5000 and are scaled up by the same factor, then rounded down.

      BTW you can get the CPI-U numbers here
      http://data.bls.gov/cgi-bin/surveymost?cu
      then select
      U.S. All items, 1982-84=100 – CUUR0000SA0

    • JD says

      Thanks for the replies, Harry Sit and Mathemetician. Something still doesn’t look exactly right though. I assume the base year is Tax year 2006, when the 401k limit was first $15,000 and catch-up was $5,000. CPI-U in 3Q 2005 calendar year was 192.767.

      Based on your comments, every subsequent year from 2007 to present does agree with your calculation except for the current tax year (2014):

      2013 3Q CPI-U was 232.018 average. This would make 401(k) limit at 18,054 (rounded down to 18,000) and the catch-up limit at 6,113 (rounded down to 6,000). However, the actual limits in 2014 are 17,500 and 5,500.

      What am I missing?

      EDIT: Nevermind, I was incorrectly using the entire year average for CPI-U, not 3Q CPI-U. So 3Q 2005 was actually 196.867 and 3Q 2014 was 233.874. It all works out now. Thanks again!

    • JD says

      One final correction so I don’t confuse anyone more than I already have:

      3Q 2005 CPI-U = 196.867
      3Q 2013 CPI-U = 233.874

      So now I correctly calculate tax year 2014 401(k) limits to be 17,500 and 5,500 by calculating the percent increase and rounding down to the nearest 500.

      As stated in the original article, 2015 limits will almost certainly be 18,000 and 6,000, though this won’t technically be official until the sept CPI-U numbers are released in the upcoming week.

  4. JB says

    I’m over 50 and just started a new job with a small business which offers a simple IRA instead of a 401K like I had at my prior job. It looks like I can only contribute $15,500 in 2015 with the simple IRA where in 2014 at my old job I could contribute $23,000. Can I also contribute $6500 to a traditional or Roth IRA?

    • Harry Sit says

      Yes, you can also contribute $6500 to a traditional or Roth IRA (if within income limit). You may or may not be able deduct your traditional IRA contribution depending on your income.

  5. PH says

    What is the income limit for 2015 for a full Roth Contribution? That must have also increased from $181,000.00; right?

  6. KC says

    I am 50+ single , I contribute 23K in 401K. How much if any can I contribute to traditional IRA that I can deduct?
    My income is 75K. I also have a defined contribution pension from my employer.

  7. Alan Drake says

    Does the retirement tax credit for the working poor (Form 8880) – $200 up to $1,000 tax credit for a $2,000 IRA contribution (proportionally less for smaller contributions) – have an inflation adjustment ?

    Are there inflation adjustments for either for the maximum credit ($1,000) or the income limits that qualify for this tax credit ?

    I have talked a half dozen hard working but minimum wage earners in their 50s and 60s into putting a few dollars aside, using this credit. And my Christmas bonus has been an IRA contribution for one person.

    • Harry Sit says

      The credits don’t but the income limits do. For instance the maximum income to qualify for the 10% tier goes up in 2015 from $60k to $61k for married filing jointly and $30k to $30,500 for singles. The increase for the 50% tier is half as much: from $36k to $36,500 for married filing jointly and from $18k to $18,250 for singles.

  8. Thomas says

    Harry Sit,
    Love your blog! My wife and I are 40. She is an independent contractor just starting out and will earn approximately $12,000 after expenses this year. I have maxed out all tax advantaged accounts including 403b, 457b and a 401K based on my salary of $300,000. Would she be able to contribute most of her earnings into a solo 401K considering that she is an independent contractor? It appears that this may be a better option for her than a SEP IRA?

    Thanks

    Thomas

  9. Roger says

    Thanks for the nice blog…Q: I’m not sure I understand the “highly compensated employee” (HCE) rule. They hit me with it last year (2013), however, even though I make about 6% more I was not affected this year (2014). Also, I’m starting a new job next month and my salary will be about 20% higher (~40% higher with expected bonus). How do I plan for the HCE rule? Is it different for every company? I’m over 50 so had planedn to contribute the max in 2015, $24K.

    • Harry Sit says

      Earning more than the HCE limit is only a necessary condition. It doesn’t automatically subject you to a reduced contribution limit. If you are under the limit you won’t get hit for sure. If you are over the limit, you may or may not get hit by it. It depends on the company and what other employees do. You just contribute the max as usual. If you get hit, so be it. There isn’t much you can do about it.

  10. Sonja says

    I’m single, younger than 50, and make 75-80k salary (before taxes). I would like to open a Roth IRA to supplement my 403b plan (I’m looking into opening Roth IRA with Scottrade or Vanguard). My 403b plan does not activate until I have worked at my place of employment for two years (end of 2016). My employer will match up to 8% of what I contribute to the 403b plan. Can I still contribute $5,500 to the Roth IRA and (up to) $18k to my 403b? What information/rules do I need to be aware of if I were to contribute to both accounts? Any other advice for a newly employed person looking for optimal retirement investment?

    Thanks!

    • Harry Sit says

      You are well under the income limit for contributing to Roth IRA in addition to a 401k or 403b. See comment #5 above.

  11. DP says

    My company is enforcing an upfront HCE limit of 6% of my salary which is way below the contribution limit for 2015. Are they legally allowed to do this, if not, is there a regulation I can show them. I think I will be borderline whether I cross the new 2015 $120K HCE threshhold

    • Harry Sit says

      Yes it’s legal. I think whether you are an HCE in 2015 depends on whether your 2014 income exceeds the 2014 HCE threshold.

  12. Karen says

    I’m in a 401(a). Are the 401k limits above interchangable with 401a; in other words am I limited to combined contributions of $23,000 for 2014 and $24,000 for 2015 between my 401a and 457 plans (as long as I’m under the income limits)?
    Great article!

    • Harry Sit says

      No. You can do whatever the 401a plan allows plus the full $24k to 457 if you are over 50 in 2015.

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