Scott M. Dougan: IRA, 401(k) rules have changed for 2015

With a new year, new rules are in effect for your retirement plans.

And the changes for IRAs and 401(k)s plans in 2015 are shaping up to be significant and important to understand.

Not recognizing or fully comprehending some of the new rules and regulations can lead to missing out on opportunities or, worse, making a financial mistake that could prove to be costly in the long run. Here are some of the most significant changes to be aware of for 2015:

401(k) contribution limits

Because of a projected rise in the cost of living, the IRS increased the contribution limits for taxpayers who have a 401(k) or other employee-sponsored plan for 2015. Investors can now contribute up to $18,000 annually to these plans, which is a $500 increase from 2014. The catch-up contribution limit for those 50 and over also increased an additional $500 and now stands at $6,000 for a total of $23,000 per year. However, Individual Retirement Account holders will see the same annual contribution limit of $5,500 this year as they did in 2014. The catch-up contribution for those 50-plus will also stay at $1,000 for a total of $6,500 next year.

Qualified longevity annuities option added

A qualified longevity annuity contract can now be held inside of an IRA or 401(k). These are fixed annuities with no fees or exposure to market volatility that can carve out a portion of your savings for predictable lifetime income. Unlike traditional pensions, any remaining account value will pass to your heirs after a life or joint life payout. Starting in 2015, the QLAC can be worth up to the lesser of 25 percent of the account balance or $125,000. Another potential benefit to consider: The QLAC’s are excluded from the retirement account balance when calculating required minimum distributions, and income can be deferred for up to 15 years or until age 85.

IRA rollover limits

Be careful when making any rollovers in 2015. Starting Jan. 1, investors can make only one rollover from an IRA to another IRA during a 12-month period before facing a tax penalty. Withdrawals after the first rollover will be taxed at regular rates and could also include a 10 percent early withdrawal tax. These additional withdrawals will be subject to the regular IRA contribution limits ($5,500, or $6,500 for 50 years and older). Any excess contributions will also be subject to a 6 percent excise tax. Taxpayers should pay extra attention with any and all withdraws from IRA funds in 2015 and beyond to avoid any unnecessary fees.

Decreased creditor protection, inherited IRAs

In 2014 the U.S. Supreme Court stated inherited IRAs are not “retirement funds,” eliminating certain protections for the retirement vehicle including the creditor protections afforded under federal law in Clark v. Rameker. Previously inherited IRAs were protected from creditors for up to $1.2 million. If creditor protection is a top priority for passing your IRAs to your heirs, certain types of trusts may be an option to consider. Assistance from a qualified professional is recommended to understand the appropriate trust work needed for your situation.

As with most things in life, being informed and prepared is the best way to maximize your finances. These changes should be incorporated into your financial plan if they apply to you. If you do not have a plan, then the beginning of the New Year is a great time to create one. It is one of the best things you can do for your peace of mind and your future.

This story was originally published January 26, 2015 at 3:08 PM with the headline "Scott M. Dougan: IRA, 401(k) rules have changed for 2015."