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Retirement Perspectives

No matter what Washington decides to do on tax reform, your retirement plan options for 2018 are already set.

On October 19, the Internal Revenue Service (IRS) announced, in Notice 2017-64,  the inflation-adjusted dollar limitations for retirement plans, IRAs, and related options for tax year 2018. The limit on salary deferral contributions to 401(k), 403(b), and 457(b) plans increased, from $18,000 in 2017 to $18,500.  This is the first time the 401(k) deferral limit has increased since 2015. The employee catch-up for those age 50 and older does not increase, holding at $6,000.

In the case of SIMPLE plans, for the fourth consecutive year, the maximum deferral limits remains flat, at $12,500. In addition, the catch-up for those aged 50 and older remains unchanged, at $3,000. Annual IRA contributions (traditional and Roth), as well as catch-ups, are unchanged, at $5,500 and $1,000 (age 50 plus catch-up), respectively.

Click here for a complete list of 2018 cost-of-living adjustment increases.

 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

Traditional IRA contributions plus earnings, interest, dividends, and capital gains may compound tax-deferred until you withdraw them as retirement income. Amounts withdrawn from traditional IRA plans are generally included as taxable income in the year received and may be subject to 10% federal tax penalties if withdrawn prior to age 59½, unless an exception applies.

A Roth IRA is a tax-deferred and potentially tax-free savings plan available to all working individuals and their spouses who meet the IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

SIMPLE IRA plan provides small employers with a simplified method to contribute toward their employees' and their own retirement savings. Employees may choose to make salary reduction contributions and the employer is required to make either matching or nonelective contributions. Contributions are made to an Individual Retirement Account (IRA) or annuity set up for each employee (a SIMPLE IRA). A SIMPLE IRA plan account is an IRA and follows the same investment, distribution and rollover rules as traditional IRAs.

A Simplified Employer Pension (SEP) is an IRA based plan that allows small business owners and their employees to save for retirement on a tax-deferred basis.

401(k) is a qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on an aftertax and/or pretax basis. Employers offering a 401(k) plan may make matching or nonelective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

A 403(b) plan is a retirement savings plan that allows employees of public schools, nonprofit, and 501(c)(3) tax-exempt organizations to invest on a pretax and or Roth aftertax basis. Contributions to a 403(b) plan are conveniently deducted directly from your paycheck. In addition, your employer may elect to make a contribution on your behalf.

457(b) is a nonqualified, deferred-compensation plan established by state and local governments, tax-exempt governments, and tax-exempt employers. Eligible employees are allowed to make salary deferral contributions to the 457 plan. Earnings grow on a tax-deferred basis and contributions are not taxed until the assets are distributed from the plan.

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