IRS Update: 3 Retirement and Tax Changes in Store for 2016

IRS Update: 3 Retirement and Tax Changes in Store for 2016

How much can you save for retirement? And what will you pay in taxes?

It’s not just a matter of budgeting wisely. Like it or not, for answers to these questions, you also need to defer to the IRS.

The agency’s newly released guidelines include adjustments to some tax brackets and deductions and a shift in Roth IRA eligibility—while contribution limits to retirement accounts hold steady.

Here's a look at what's in store for 2016.

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What the IRS Says About … Retirement Accounts

In 2015, taxpayers could contribute up to $18,000 to company-sponsored 401(k) plans, a boost of $500 from the previous year.

That amount will be staying the same for 2016.

Contributions to other tax-deferred retirement vehicles like 403(b) accounts, 457 accounts or the federal Thrift Savings Plan will also remain capped at $18,000.

The contribution limit for IRAs, meanwhile, will continue to be $5,500 for 2016.

But the IRS did make tweaks related to eligibility for a Roth IRA. For instance, the phase-out income range for singles and heads of household will be $117,000 to $132,000 (up from $116,000 to $131,000). And it'll be $184,000 to $194,000 for married couples filing jointly (up from $183,000 to $193,000). Get more details here.

Bringing home an even bigger paycheck than that? A downside is you don’t qualify to contribute to a Roth IRA.

What the IRS Says About … Tax Brackets and Deductions

Singles making more than $413,200 and married couples at more than $464,850 paid 2015 taxes at the top level: 39.6%.

Next year, some of those folks may slide down to the 35% bracket, since the income threshold for 39.6% will be upped to more than $415,050 for singles and more than $466,950 for married couples.

Some other thresholds have also increased slightly to account for inflation (you can find the full breakdown at IRS.gov). If you're a married couple earning over $18,550 but not over $75,300, for example, expect a 2016 tax rate of $1,855, plus 15% of the excess over $18,500.

The standard deduction amounts for singles ($6,300) and married couples filing jointly ($12,600) will remain unchanged. But the standard deduction for heads of household will rise to $9,300 from $9,250 in 2015.

You can find more need-to-know information at LearnVest’s Taxes Knowledge Center. And, because everyone's financial situation is different, consider consulting with an accountant or financial planner to better understand how all the IRS changes may affect you.

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