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Investing Specialists

Essential Financial-Planning Numbers for 2017

The skinny on retirement-plan contributions, Social Security, and more.

In the wake of the election, some market participants have gotten concerned about inflation, owing to President-elect Donald Trump's stated plans for infrastructure spending, tax cuts, and curbs on imports. Indeed, the "break-even rate" between Treasury Inflation-Protected Securities and nominal Treasury bonds--which is considered a measure of investors' inflation expectations--jumped from 1.71% before the election to 1.91% more recently.

But various measures that are keyed off of inflation rates, including Social Security income and company retirement-plan contributions, are seeing low or nonexistent increases for 2017. That's because actual, rather than projected, inflation determines whether there are increases in any of those figures, and inflation has been pretty modest overall.

Here's a roundup of some of the key financial-planning numbers to have on your radar as we head into next year.

Company Retirement Plans: 401(k), 403(b), and 457
The basic contribution limits for 401(k)s, 403(b)s, and 457 plans are staying the same for 2017 as they were in 2016. Contribution limits to 401(k)s, 403(b)s, and 457s remain at $18,000 for investors younger than 50 and $24,000 for those 50-plus. The total allowable contribution to a 401(k)--including employee contributions (pretax, Roth, and aftertax) as well as employer's contributions--is increasing a bit for 2017, to $54,000 from $53,000 last year. (This article discusses the appropriateness of aftertax 401(k) contributions.)

The contribution limit to IRAs is also remaining the same for 2017: Investors younger than 50 can contribute $5,500 to an IRA in 2017, and those older than 50 can make an additional catch-up contribution of $1,000. (Remember that you don't need to wait until you turn 50 to make the increased contribution; for example, if you’re turning 50 in September 2017, you could go ahead and make a 2017 IRA contribution of $6,500 in January.) That limit is the same for both Roth and traditional contributions.

The income limits to be able to deduct a traditional IRA contribution are nudging up a bit for 2017, however. Individual filers who can make a retirement-plan contribution at work can make a fully deductible IRA contribution if their 2017 income is under $62,000; they cannot deduct their IRA contribution if their income is more than $72,000. (The amount of the contribution that is deductible is reduced--or phased out--for single taxpayers whose income lands between $62,000 and $72,000.) For married couples filing jointly in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, traditional IRA contributions are fully deductible if their income falls below $99,000; contributions aren't deductible if their income exceeds $119,000. (Contributions are partially deductible if income falls between those two thresholds.)

Roth contributions aren't deductible, but income limits are increasing. Singles earnings less than $118,000 can make a full Roth contribution, but Roth IRA contributions are out of reach for single filers who earn more than $133,000. (Contributions are reduced if the single taxpayer's income falls between these two bands.) Married couples filing jointly can make a full Roth IRA contribution if their income is less than $186,000; they are ineligible to make a Roth contribution if their income exceeds $196,000. (Contributions are reduced for married couples filing jointly who earn between $186,000 and $196,000.)

For investors who are shut out of a direct Roth IRA contribution because they earn too much, the "backdoor" Roth IRA maneuver remains alive and well as we head into 2017. That means that higher-income investors can open a traditional IRA--for which there is no income limit if they're not deducting that contribution--then convert those assets to Roth at some later date. Assuming the investments have not appreciated in the account--and importantly, that the investor has no other traditional IRA assets that have not yet been taxed--the maneuver should be close to tax-free.

Long-Term Capital Gains on Investments Outside of Tax-Sheltered Retirement Accounts
For investors selling stocks and funds from their taxable accounts (that is, outside of their tax-deferred and retirement accounts), the long-term capital gains bands of 0% (for investors in the 10% and 15% income-tax brackets), 15% (for investors in the 25%, 28%, 33%, and 35% income tax-brackets), and 20% (for investors in the 39.6% income-tax bracket) carry over for 2017, though the income that falls into each of these brackets is edging up a bit, as discussed here.

Social Security
Social Security recipients will be receiving a small cost-of-living adjustment in 2017, amounting to 0.3%.

Many folks are continuing to work even after they've started receiving Social Security benefits. In 2017, the amount that a Social Security recipient who’s under full retirement age can earn without prompting a temporary withholding of benefits is $16,920; someone who reaches 66 (full retirement age) in 2017 will be able earn up to $44,880 without triggering the temporary withholding in Social Security benefits. Those who are of full retirement age in 2017 can earn an unlimited amount without any benefits withholding. Any withheld benefits are added back to benefits after an individual reaches full retirement age.

The amount of workers' income that is subject to Social Security tax is also increasing for 2017, to $127,200. This fact sheet details all of the key 2017 numbers related to Social Security.

Health Savings Accounts
The parameters for high-deductible healthcare plans and health savings accounts are generally remaining the same for 2017. For 2017, a high-deductible plan is defined as one with at least a $1,300 deductible for individuals and a $2,600 deductible for families; the maximum out-of-pocket expenses that covered people can incur are $6,550 for individuals and $13,100 for families. For 2017, those with single coverage can contribute $3,400 to an HSA (a slight increase for 2017), while those with family coverage can contribute $6,750. Investors age 55 and older can make an additional $1,000 catch-up contribution to their HSAs.

For those who are making the maximum allowable contributions to their company retirement plans and IRAs, the HSA provides another way to amass tax-advantaged savings. The investor makes pretax contributions, the money accumulates tax-free, and qualified withdrawals are also tax-free. Unfortunately, many HSAs are full of fees; this article discusses some ways for HSA contributors to get the most out of their accounts.

Education Savings
Each individual can contribute up to $14,000 a year to a 529 college savings plan on behalf of a specific individual without having that contribution count toward the gift tax. Additionally, investors who would like to make a large upfront contribution to a 529 can contribute up to $70,000 on behalf of a single individual in a given year; as long as he or she makes no future contributions on behalf of the same individual for the next five years, the contribution will not count toward the gift tax.

Coverdell Education Savings Account contribution limits are much lower; for 2017, they are capped at $2,000 per beneficiary, and income limits apply. For 2017, single filers earning more than $110,000 cannot contribute to a Coverdell, and contributions are reduced for individuals earning between $95,000 and $110,000. Married couples filing jointly can contribute to a Coverdell if they earn less than $220,000 in 2017; contributions are reduced if the couple's income falls between $190,000 and $220,000.

Estate and Gift Tax
The annual gift-tax exclusion for 2017 is staying the same as 2016, at $14,000. The amount of assets that are exempt from the estate and gift tax is getting a bump-up for 2017, to $5,490,000. With the spousal portability election, discussed here, that means that married couples can escape gift/estate taxes if their total assets and lifetime gifts are less than $10,980,000.