IRS Announces 2016 Contribution Limits for Self-Directed IRAs

‘Tis the season. The Internal Revenue Service has announced the allowable contribution limits for IRAs, including self-directed IRAs, and other types of retirement accounts for tax year 2016.

The increase for next year? Zero.

The total contribution limits for traditional and Roth IRA accounts for tax year 2016 stay unchanged at $5,500, combined. The ‘catch-up’ contribution limit – an additional contribution allowance available to taxpayers age 50 and older, will also remain steady at $1,000.

Furthermore, the elective contribution limits for Solo 401(k) plans, including self-directed Solo 401(k) plans, will remain unchanged at $18,000. The 50 and older catch-up contribution limit will also remain unchanged at $6,000.

This means that plan participants over age 50 can make maximum employee deferral contributions up to $24,000, in either pre-tax or after-tax contributions. It’s the increasingly popular Roth 401(k) option that makes pre-tax contributions possible.

Meanwhile, the business/plan sponsor can make profit-sharing contributions of up to 25 percent of compensation (20 percent for single-member LLCs and sole proprietorships), up to a combined maximum, together with employee contributions – of $59,000 for the year.

As for SIMPLE IRA and SIMPLE 401(k) plans, allowable employee contributions will remain unchanged at $12,500. Catch-up contribution limits for those over 50 will also stay the same at $3,000.

It shouldn’t be a surprise that there were no increases this year. The cost of living as measured by the CPI has been relatively flat, though the cost of housing has certainly gone up. Consumers got a bit of a break, though, thanks to relatively low oil and gas prices.

Earlier this year, the Social Security Administration announced that the annual COLA, or “cost of living allowance” for Social Security Benefits would also remain unchanged.

There is some good news, however: The IRS has raised the allowable Roth IRA income limit to $117,000 for single taxpayers and $184,000 for married taxpayers who file joint income tax returns – an increase of $1,000.

You can also still make “backdoor” Roth contributions, of course, by converting Traditional Self-Directed IRAs and 401(k) balances over to Roth accounts and paying income taxes on the amount you convert.

For the vast majority of our clients, the new tax year will not require you to make significant changes to your investing strategy. If you have contributions coming out of your account or paycheck on an automated basis, you don’t have to reset your contribution level.

Headquartered in Asheville, North Carolina, American IRA, LLC is a leading expert on self-directed retirement accounts, including self-directed IRAs, 401(k)s, SIMPLE IRAs, SEPs and more. We work with successful investors from coast to coast who are interested in ways to potentially increase returns, reduce dependency on the stock market and on Wall Street and increase overall diversity by seeking exposure to many asset classes not normally available from most brokers.

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