Know Your Limits

December 09, 2014

With New Year’s Eve celebrations right around the corner, it is important to know your limits.I don’t mean your limit on glasses of champagne and calorie intake, although those limits are also pretty important while you ring in the new year. Uncle Sam has some changes in store as we head into 2015. 

For those of you who max out your employer-sponsored retirement plan, the IRS has raised the limit for your pre-tax and/or Roth contributions for 401(k), 403(b), and most 457 plans to $18,000 for 2015. If you will be age 50 or older next year, the catch-up contribution limit has increased by $500  to $6,000 as well. Some employers also allow employees to contribute with after-tax dollars in addition to the more common pre-tax and Roth options and in that case, the total limitation for both employer and employee contributions would be $53,000  for 2015.  For example, a 40-year old employee earning $100,000 with a 6% match could contribute the following:

$18,000 pre-tax or Roth employee salary deferral
$6,000 employer match
$29,000 after-tax employee salary contribution
$53,000 total combined employer/employee contribution

Did you enroll in a high-deductible health plan combined with a health savings account for the upcoming year?  For 2015, the HSA limit for single coverage has increased $50 to $3,350 and family coverage has increased $100 to $6,650.  Remember that this also includes any employer contributions to your HSA. Unlike the flexible spending account option that you had to decide on the amount during fall’s open enrollment period (which by the way went up to $2,550 for 2015), you can add more to your HSA by simply writing a check to your HSA provider and you even have until April 15th of the following year to max out your account.

Supersavers and lotto winners will be glad to know that the federal estate tax exclusion amount has increased $90,000 to $5,430,000 if they die next year. Not quite a multi-millionnaire yet?  Then it may be good to know that the Earned Income Tax Credit has increased $99 to $6,242 for an eligible married couple filing jointly with 3 or more kids.

It pays to know your limits. Otherwise, you can miss out on some tax-saving opportunities. Set a cap on how much you’ll spend on champagne and noisemakers and then you can ring in the new year by taking advantage of these increases for your financial future.