The Internal Revenue Service recently released the cost of living adjustment (COLA) numbers for 2017. This adjustment will increase the numbers slightly on items such as IRA and qualified plan contribution limits, the Social Security tax threshold and other items related to filing taxes and saving for retirement. Financial planners can now begin planning for their clients for next year with a clear idea of what the numbers will look like. Here’s a list of the key numbers that the IRS will and won’t adjust for next year. (For more, see: Social Security COLA Unlikely for 2017.)

Key COLA Numbers for 2017

  • Qualified plan contribution limits: This figure will stay at $18,000, the current savings limit for 401(k), 403(b) and 457 plans as well as the government sponsored Thrift Savings Plan. The catch-up contribution for savers who are 50 and above will likewise remain at its current limit of $6,000.
  • SEP IRA and Solo 401(k) contribution limits: Self-employed taxpayers who contribute to these plans will be able to put in $54,000 in 2017, which is up from $53,000 this year.
  • Traditional and Roth IRA contribution limits: This number will stay at $5,500 in 2017, the same as it is this year. Catch-up contributions for those who are age 50 and above will also remain at $1,000 next year.
  • Income phaseout threshold for Roth IRA contributions: Although the contribution limits themselves will remain unchanged, the amount of income that the taxpayer can receive will rise by $1,000. The phaseout schedule for single filers for 2016 starts at $117,000 and is complete at $132,000. The new phaseout schedule for single filers will range from $118,000 to $133,000. The phaseout schedule for married couples who file jointly will rise by $2,000, from a range of $186,000 to $196,000 in 2016 to $188,000 to $198,000 in 2017. (For more, see: The Basics of Roth IRA Contribution Rules.)
  • Deductions for traditional IRA contributions: The income phaseout schedule for taxpayers who participate in an employer-sponsored qualified plan and also make traditional IRA contributions will rise by $1,000 for single filers in 2017. The current phaseout schedule is $61,000 to $71,000 and the new schedule will be $62,000 to $72,000. The phaseout schedule for married taxpayers who file jointly and also participate in a qualified plan will rise to $99,000 to $119,000 if at least one spouse is also participating in a qualified plan. The phaseout schedule for those who are not will run from $186,000 to $196,000 in 2017.
  • Defined benefit plan limits: The maximum possible benefit that can be received in this type of plan will rise from $210,000 in 2016 to $215,000 in 2017.
  • Estate tax exemption: The amount of assets that will be excluded from a deceased’s taxable estate in 2017 will rise to $5.49 million, up from $5.45 million in 2016. The exemption for married couples will be $10.98 million. (These numbers are likely to change after the election).
  • Annual gift tax exemption: This is the amount of money or assets that one person can give to another in a given year without incurring gift tax. It will remain unchanged at $14,000 for 2017.
  • Standard deduction: This key deduction will increase by $50 in 2017 to $6,350 for single filers and will increase by $100 to $12,700 for married filing jointly.
  • Personal exemption: This amount will remain unchanged at $4,050.

The Bottom Line

The new tax numbers and thresholds for 2017 will allow filers to begin their tax planning for next year. For more information on tax changes that will go into effect next year, visit the IRS website at www.irs.gov. (For more, see: How to Manage Lower Social Security Adjustments.)

 

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