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Tax Changes for 2015: New 401(k) Contribution Limits and Updates to Tax Brackets

December 15, 2014

taxesA new year brings new changes, and taxes are no exception. Recently, the IRS announced some important updates to tax brackets, retirement account contribution limits and some common deductions that will take effect in 2015. We encourage you to take a few minutes to review these changes so that you know what to expect over the coming 12 months.

Single filers can take a standard deduction of $6,300 in 2015, up from $6,200 in 2014. [Tweet this]

2015 Tax Brackets

The new 2015 tax brackets are:

Tax Rate

Single Filers

Married Filing Jointly

10%

Up to $9,225

Up to $18,450

15%

$9,225–$37,450

$18,450–$74,900

25%

$37,450–$90,750

$74,900–$151,200

28%

$90,750–$189,300

$151,200–$230,450

33%

$189,300–$411,500

$230,450–$411,500

35%

$411,500–$413,200

$411,500–$464,850

39.6%

More than $413,200

More than $464,850

Standard Deduction and Personal Exemption Increases

For 2015, the standard deduction for both single and married taxpayers will increase slightly:

  • Single filers can take a standard deduction of $6,300 in 2015, up from $6,200 in 2014.
  • Those who are married filing jointly get a standard deduction of $12,600, up from $12,400 in 2014. 

The personal exemption amount in 2015 increases by $50, to $4,000. The personal exemption phase-out begins when adjusted gross income exceeds $258,250 (for single filers) and $309,900 (for those who are married filing jointly).

Contribute More to Your 401(k), but Not Your IRA

If you participate in a 401(k) or similar retirement plan at work, you'll be able to save a little bit more in 2015. However, the amount you can contribute to an IRA has not changed.   

  • If you participate in a 401(k), 403(b), 457 or Thrift Savings plan, you can contribute $18,000 in 2015, a $500 increase from 2014.
  • If you are over age 50 and participate in a 401(k) or similar plan, you can also make a catch-up contribution of $6,000, which is $500 more than this year, for total contributions of $24,000.
  • Annual contributions to traditional and Roth IRAs are still capped at $5,500 a year, plus a $1,000 catch-up contribution for those over age 50.

Changes to IRA Phase-Out Ranges

While IRA contribution limits haven't changed, the IRS has increased the income levels at which people lose the ability to make contributions to traditional and Roth IRAs.

  • If you are able to contribute to a retirement plan at work, you lose the ability to deduct traditional IRA contributions when your modified adjusted gross income (AGI) is between $61,000 and $71,000, if you are single. That's an increase from $60,000 and $70,000 in 2014. The income phase-out range for married couples filing jointly is $98,000 to $118,000, up from $96,000 to $116,000 in 2014.
  • The income phase-out range for contributing to a Roth IRA if you are single or the head of a household is $116,000 to $131,000, up from $114,000 to $129,000 in 2014. For married couples filing jointly, the phase-out range is $183,000 to $193,000, up from $181,000 to $191,000 in 2014.

A Few More Points to Note

The IRS has also made adjustments to a number of other credits and deductions. A few important changes to note include:

  • The estate tax exemption is now $5.43 million, up from $5.34 million, an increase of $90,000.
  • The maximum amount you can contribute to a flexible spending account in 2015 is $2,550―$50 more than in 2014.
  • The total amount you can contribute to a flexible spending account (FSA) has increased by $50, to $2,550. 
  • The adoption tax credit has increased slightly, to $13,400.

There aren't any major or unexpected changes to taxes for 2015 (at least not yet—Congress does have until the end of the year to change its mind about things). Still, it's important to stay on top of even small updates to the tax code to make sure that you're not making mistakes—like contributing to a Roth IRA when you're no longer eligible or missing out on saving opportunities.