401k And IRA Contribution Limits Go Up For 2019
/Hi everyone,
For the first time since 2013, the amount you can contribute into an IRA is increasing, from $5,500 to $6,000 ($7,000 if age 50 or older). The 401k contribution limit is increasing as well. The amount of pay you can defer into your 401k plan goes up from $18,500 to $19,000 ($25,000 if 50 or older). This chart Josh put together does a nice job detailing the 2019 contribution limits for various accounts, as well as the gift and estate tax exclusions. Take a look:
A couple things to stress regarding IRA contributions:
Your ability to deduct your IRA contribution may be limited/restricted if you already contribute into a 401k plan. Check with us or your CPA before doing so.
The $6,000 limit covers all IRA plans you own. For instance, if you intend on making both Traditional IRA and Roth IRA contributions, you can split the $6,000 between accounts but your cumulative contribution cannot exceed $6,000. Meaning, you could not deposit $6,000 into one IRA and another $6,000 into a second IRA. But you could do $5,000 into one IRA and $1,000 into another IRA, or $3,000 into one and $3,000 into another, etc.
If you plan on making a Roth IRA contribution, we advise waiting until the calendar year is over to do so, rather than make recurring monthly contributions. This ensures that your income does not exceed the IRS limit that prevents you from making Roth contributions. You have until April 15th of the following year to make IRA contributions for the prior year, so there is plenty of time. You don’t want to risk funding a Roth IRA throughout the year, only to learn that your income was too high and have to scramble to get the funds out of the Roth to avoid paying a penalty.
The above IRA limits apply to 2019, not 2018. I emphasize this because if you plan on making IRA contributions for 2018 (which you have until April 15, 2019 to do), the contribution limit of $5,500 applies ($6,500 if age 50).
If you have questions on any of the above, just ask!
In The Market...
The S&P 500 gained +2.6% last week. Let's look under the hood:
(price data via stockcharts.com)
A 3rd-straight weekly gain for the S&P 500, which saw every major stock sector finish in the green. Is this the beginning of a much larger rally? Maybe, but I would not bet on it for one major reason.
Looking back over the previous market “corrections” that have occurred since the start of 2018, the S&P 500 found what is called price “support” each time it fell to 2,600 (the dashed line in the chart below). This means that stock prices rebounded when the S&P fell to this price on three separate occasions. These points in time are circled in the chart below.
(chart created in stockcharts.com)
The fourth time this occurred in December (last circle on the right), the price support at 2,600 did not hold and the S&P sharply fell another -10% below it in a matter of days. Since then, S&P index stocks have methodically worked their way back up toward 2,600, finishing last week just below that mark.
Now what?
Technically speaking, we might anticipate that 2,600 will become a “resistance” level that prevents stock prices from building on this current rally. It is common for a price-point to turn from support to resistance after the support is broken. This potential outcome is plain as day when looking at the above chart.
If this alone were the only headwind that existed I may be more optimistic, but the fact that many of the other statistical measures we care about are damaged fuels the stock market risk I believe is present heading into next week.
With that being said, the picture is better than it was last week, which was better than the week before that, which was better than the week before that… So there has been improvement. However, the market does not go up or down in a straight line, so it is most likely that further declines come before the S&P 500 eventually mounts a sustainable rally.
If we are right, then patience pays. If we are wrong, we will adjust accordingly by potentially adding to our stock positions.
We added a couple bond positions last week — a Corporate Bond fund (SPLB) and a Municipal Bond fund (PZA). The Muni bond fund was only added to taxable/brokerage accounts, as the tax-exempt nature of the bond interest paid by Muni bonds is of no benefit to IRA accounts. I believe the bond market has potential over the coming weeks and could potentially provide a hedge in the event that stock prices do fall lower from here. We shall see.
In Our Portfolios...
What's New With Us?
On my commute home from the office Friday I drove along the Highway-99 Viaduct one last time before it closed down for its pending demolition. As excited as I am for the new underground tunnel and a Seattle waterfront that may rival San Francisco’s Embarcadero, I’m going to miss the Viaduct. On a clear day, the view driving along it through downtown Seattle is been tough to beat.
On that note, our office hours will be more varied over the next few weeks until the new tunnel opens. Josh and I may potentially be working from home a bit more due to the massive increase in traffic that the Seattle Dept of Transportation anticipates. I am all about efficiency and sitting in a long, unnecessary commute is inefficient. Our business hours will remain the same, as will our effort and focus, so I expect no impactful change on our day-to-day operations. But I do want to give you the head’s up.
Have a great week!
Brian E Betz, CFP®
Principal