The Independent Investor: Workers Get to Save More in 2015

The IRS has given us all a New Year's gift. As of Jan. 1, the tax-deferred contributions on a variety of employee-sponsored, retirement savings plans have been increased, but not for IRAs.

Readers may already be familiar with the traditional 401(k) plan. It was established as an alternative to the nation's pension plans that are fast disappearing. Most companies offer 401(k)s to their employees (or 403(b)s if working for the state or a non-profit) as a fringe benefit. These plans allow employees to contribute as much as $17,500 a year plus an additional $5,500 catchup if you are over 50. The contributions come right off the top of your W-2 wages so there are considerable tax savings in contributing toward your retirement. In addition, some companies will match your contributions up to a certain percentage. Starting in 2015, your traditional 401(k) and 403(b) maximum contributions will be increased by $500 for those in both age groups.

The maximum IRA contributions will remain the same. However, there will now be new limits on their tax-deductibility. If you are single and make more than $71,000 a year (or married with a combined income of more than $118,000) and have a workplace retirement plan, traditional IRA contributions are no longer deductible. As for the Roth IRA, couples who make more than $193,000 and individuals who earn over $131,000 will no longer be eligible to contribute to a Roth.

The government will also offer a new retirement account, called the myRA. These new retirement savings accounts are targeted to middle and lower-income Americans who make less than $129,000 for individuals or $191,000 for married couples. The myRA is like a Roth IRA, which means contributions, although not tax-deductible, can be withdrawn without triggering an additional tax once the account is five years old and the account owner is over 59 1/2 years old.

How it differs is that the myRA will be invested in a new retirement savings bond backed by the U.S. Treasury that is guaranteed not to lose value and will be free of fees. Individuals can continue to contribute to this account for up to 30 years or until the value exceeds $30,000. At that point it will be transferred to a private-sector retirement account.

Deposits are made through payroll deductions and a myRA can be opened with as little as $25. After that, one needs to commit to a direct deposit of $5 or more every payday. What if you quit?  Don't worry, these accounts can be moved without penalties to your new job.

Those who arguably benefit the most from the 2015 changes are small business owners who contribute to Solo 401(k) Plans. These plans were designed specifically for self-employed entrepreneurs or small business owners with no employees. These self-directed plans try to maximize contributions and at the same time be less complex and expensive to maintain than conventional 401(k) plans.

Solos can be opened at your local bank or credit union. They will enjoy the same 2015 increases in contributions that traditional plans receive and contributions can be made either pre-tax or after-tax (Roth). They also have a profit-sharing element that allows your business to make a 20-25 percent profit sharing contribution up to a combined maximum of $53,000 in 2015 (or $59,000, if you are over 50).

Of course all of this news is great for those of us who can afford to contribute the maximum to our 401(k) plans. To be fair, the myRA does address the widening gap between the haves and have-nots in this country but $5 per paycheck is still an enormous amount for someone making $15,000 a year. The problem is that once again our legislators, who are part of the one percent, fail to understand that very few in America can contribute the maximum to their retirement plans and still eat. 

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.