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IRS Announces 2018 Retirement Plan Contribution Limits | Maryland Benefit Advisors

On October 19, 2017, the Internal Revenue Service (IRS) released Notice 2017-64 announcing cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items. The following is a summary of the limits for tax year 2018.

For 401(k), 403(b), and most 457 plans and the federal government’s Thrift Savings Plans:

  • The elective deferral (contribution) limit increases to $18,500 for 2018 (from $18,000 for 2017).
  • The catch-up contribution limit for employees aged 50 and over who participate in these plans remains at $6,000.

For individual retirement arrangements (IRAs):

  • The limit on annual contributions remains unchanged at $5,500 for 2018.
  • The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000 for 2018.

For simplified employee pension (SEP) IRAs and individual/solo 401(k) plans:

  • Elective deferrals increase to $55,000 for 2018, based on an annual compensation limit of $275,000 (up from the 2017 amounts of $54,000 and $270,000).
  • The minimum compensation that may be required for participation in a SEP remains unchanged at $600 for 2018.

For savings incentive match plan for employees (SIMPLE) IRAs:

  • The contribution limit on SIMPLE IRA retirement accounts remains unchanged at $12,500 for 2018.
  • The SIMPLE catch-up limit remains unchanged at $3,000 for 2018.

For defined benefit plans:

  • The basic limitation on the annual benefits under a defined benefit plan is increased to $220,000 for 2018 (from $215,000 for 2017).

Other changes:

  • Highly-compensated and key employee thresholds:
    • The threshold for determining “highly compensated employees” remains unchanged at $120,000 for 2018.
    • The threshold for officers who are “key employees” in a top-heavy plan remains unchanged at $175,000 for 2018.
  • Social Security cost of living adjustment: In a separate announcement, the Social Security Administration stated that the taxable wage base will increase to $128,700 for 2018, an increase of $1,500 from the 2017 taxable wage base of $127,200. Thus, with respect to higher-income employees, the maximum Social Security tax liability will increase slightly for both the employee and employer.

The chart below summarizes some of the more common adjustments to employer-sponsored retirement plans.

 

 

Originally posted by www.ThinkHR.com

Do You Need Life Insurance When You Retire? | Maryland Benefit Advisors

Once you hit 65 and retire, you don’t need life insurance, right? Not so fast!

The traditional thinking about life insurance is that you only need it when you have an income to protect, when you have a mortgage or when you have kids to support.

And while it’s true that having life insurance after 65 isn’t right for everyone, there are some good reasons you might want to consider it.

1. Supplement your retirement income. If you have an existing permanent life insurance policy, for example, you may be able to tap into accumulated cash value as a form of retirement income. You can incorporate the funds inside your permanent life insurance policy to complement other forms of retirement income such as Social Security, 401(k) plans and IRAs.

There also comes a point when people become concerned about outliving their retirement savings. Drawing on the cash value of a permanent life insurance policy enables people to use other resources to guarantee lifetime income, such as a longevity annuity or a guaranteed living benefit.

2. Transfer wealth. Life insurance can be an effective vehicle for transferring wealth to your heirs while avoiding inheritance taxes. While the federal exemption for estate taxes have been raised to $5.43 million for 2015, there are still state inheritance taxes to consider. There are several states where you wouldn’t want to be caught dead, from an estate-planning perspective.

Of course, such policies have to be set up correctly. Life insurance payouts are generally free of income tax, but they are still subject to inheritance taxes if they are owned by the insured. That is, if you own a policy on yourself, then it is considered part of your estate.

Here are three examples of how permanent life insurance can be used for wealth transfer:

  • Set up an irrevocable life insurance trust. You would then gift premiums to the trust—as long as the gifts are under the annual gift tax exemption, you wouldn’t have to worry about paying gift tax. The beneficiary of the policy would be the trust rather than your estate, so the policy wouldn’t be included in your estate for estate-tax purposes. The proceeds of the trust would then be distributed to your children or grandchildren, however you set it up. The downside of this approach is that, because the owner of the policy is an irrevocable trust, you have no access to that policy. You give up any access to it in exchange for the tax benefits.
  • Use a survivorship policy. If you might need access to the cash value of the policy, you can use a survivorship policy, one that covers multiple people and doesn’t pay out until the last person passes away. Initially, the policy would be owned by one of the insured, but when the first insured passes, the policy would then move into a trust. The trust becomes the beneficiary, avoiding estate tax because the survivorship policy pays the death benefit on the last death, not the first death.
  • Insure the children for the benefit of the grandchildren. This can be a very cost-effective way for people in their 60s or 70s to use life insurance for wealth transfer in a “skip generation” strategy. Generation 1 owns the policy, so they can have access to the cash if they want, but then when they die, the policy goes into a trust for the benefit of generation 3.

These are complex matters, so you will want to discuss these items with your financial and legal advisors to determine what post-retirement life insurance strategies make sense for you.

By Raymond Caucci
Originally published by www.lifehappens.org