The New Year is all about change and getting a fresh start, like setting personal resolutions to improve your physical and mental well-being. But our financial health often gets overlooked.
If you’re seeking to give your finances a new beginning in 2015, it’s vital to be aware of these three important financial changes that took effect at the start of the New Year.
1. Contribution limits on retirement, flexible spending accounts rise
Want to save more for your retirement in 2015? Well, you’re in luck: The contribution limit for a 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan has been increased to $18,000, a $500 bump from 2014. And if you’re age 50 or older (or turning 50 anytime before Dec. 31, 2015), you’ll be able to stash away an additional $6,000 as a catch-up contribution, a $500 increase from 2014.
What if you’re self-employed or a small-business owner with a Simplified Employee Pension (SEP) IRA? Good news: You’ll be able to contribute $53,000 to the account in 2015, a $1,000 boost from last year.
IRA contribution limits remain the same: $5,550 for total contributions to all of your traditional and Roth IRAs, or $6,500 if you’re age 50 or older. However, the contribution limit on a flexible spending account (FSA) — a tax-advantaged account that you put money into to pay for qualified out-of-pocket health care expenses — is now $2,550, a $50 increase from 2014.
2. Income tax brackets, deductions adjusted upward
Now that 2014 is in the books, tax season is approaching and there are a few changes for 2015 to note. Before meeting with your accountant, it’s important to understand your tax bracket, personal exemptions and eligible deductions, so you can properly file your taxes and get all of the savings you’re entitled to.
Tax brackets: Your tax bracket is based on your total taxable income, so this includes all sources of income such as wages, bonuses, tips, interest and dividends, freelance income, commissions, unemployment benefits and severance pay. You’ll use 2014 tax brackets to prepare your tax returns in 2015.
For 2014, single filers earning between $36,901 and $89,350 a year will pay a 25% tax rate, while those who earned $89,351 to $186,350 will pay a 28% rate. Married couples filing jointly that earned between $73,800 and $148,850 will pay a 25% rate, whereas those earning between $148,850 and $226,850 will pay 28%.
In 2015, tax brackets will be adjusted upward for inflation, so keep this in mind when preparing and filing your 2015 tax returns in 2016. More information can be found at the IRS’ revenue procedure document.
Deductions: Remember, you can take deductions to reduce the amount of your taxable income. The IRS allows taxpayers to either itemize deductions, in which you report deductions individually, or take a standard deduction, a predetermined dollar amount. Examples of popular itemized deductions include home mortgage interest, property taxes, medical expenses and charitable contributions.
For 2015, the standard deduction amount has been bumped up $100 to $6,300 if you’re single or married filing separately. For those married filing jointly, the deduction is increased $200 to $12,600.
Generally speaking, it’s a good idea to itemize deductions if your allowable deductions are greater than the standard deduction amount given by the IRS. So if you’re absolutely certain your total itemized deductions in 2015 will exceed the standard deduction, itemizing will likely make more sense.
Personal exemptions: Taking a personal exemption is another way to decrease your taxable income. In general, you are allowed to take an exemption for yourself — as long as you are not claimed as a dependent by another taxpayer — and for qualifying family members. For 2015, the personal exemption amount is $4,000, which is up $50 from $3,950 in 2014.
For those with high incomes, keep in mind that the exemption may be reduced or eliminated completely. In 2015, the personal exemption is subject to a “phaseout” if you earn more than $258,250 in adjusted gross income (or $309,900 for married couples filing jointly), and it’s phased out completely at $380,750 ($432,400 for married couples filing jointly).
3. Social Security checks, tax caps expand
There are a few key changes for Social Security in 2015.
For one, recipients of Social Security are receiving 1.7% bigger checks in 2015 due to an annual cost-of-living increase. This has lifted the average monthly benefit for retired workers from $1,306 to $1,328, according to the Social Security Administration. In addition, the maximum Social Security benefit for a worker retiring at his or her full retirement age has increased to $2,663 per month in 2015, a $21 jump from 2014.
There is also a higher tax cap on Social Security. Workers pay 6.2% of every paycheck into Social Security until their earnings exceed the tax cap, and the amount of wages subject to the Social Security tax has increased from $117,000 in 2014 to $118,500 in 2015.
For those without an online account, the Social Security Administration will now mail out paper statements. Workers turning age 25, 30, 35, 40, 45, 50, 55 and 60 will receive a statement three months before their birthdays, according to the AARP.
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