If you want to save for retirement, you should try to use IRAs and 401(k) accounts as much as you can. The tax advantages that these retirement accounts provide can boost the final size of your nest egg by tens or even hundreds of thousands of dollars, while also giving a lot more flexibility in how you invest over the course of your career. Even if you don't have access to a 401(k) plan, anyone with earned income from a job or business can open an IRA.

Every year, there are rule changes that affect 401(k) plan accounts and IRAs. Many of these changes are relatively minor but some can have a substantial impact on the way you use your retirement accounts. Later in this article, we'll look at nine changes affecting 401(k)s and IRAs in 2019, but first, here's some background on what these retirement accounts are and why they can be useful.

Image source: Getty Images.

What's a 401(k)?

A 401(k) is a retirement plan that many employers provide to help their employees with their own retirement savings. Also known as defined contribution plans, 401(k)s allow employees to make contributions from their earnings and then invest their retirement savings within special accounts. Investment options are limited to those that your employer provides, with the most common options including mutual funds and exchange-traded funds (ETFs).

Some employers choose to make additional contributions toward their employees' 401(k) plan accounts. These extra contributions usually take the form of either employer matches, where the employer's contribution amount depends on how much each employee contributes, or profit-sharing contributions, where an employee gets a certain percentage of his or her salary contributed by the employer regardless of the employee's own 401(k) contribution.

The biggest benefit of 401(k) plans is that you're allowed to avoid paying immediate income tax on the money you contribute toward your retirement. Instead, the pre-tax money is invested on a tax-deferred basis, with no tax consequences for any income or gains generated within your 401(k) account. Only when you withdraw money from your 401(k) will you pay tax on it at your income tax rate, which is often lower in retirement than in your working years. That means you get an entire career of tax-deferred growth, giving 401(k) savers a huge advantage over those who have to pay taxes on their investment income and gains year in and year out along the way.

Some 401(k) plans also offer what's called a Roth 401(k) option. The tax treatment of a Roth 401(k) is somewhat different from most 401(k)s in that you don't get upfront tax savings by contributing to a Roth 401(k). You can't deduct your contributions from your taxable income for the year you make them like you do in a regular 401(k). However, what you get instead is tax-free growth of your investments within the Roth 401(k), and you won't have to pay any taxes on your withdrawals in retirement. Not all employers offer the Roth option, but for those companies that do, it can be an attractive choice to consider.

What's an IRA?

An IRA, or individual retirement account, is a retirement account, too, but it's not set up through your employer. Instead, IRAs are personal accounts that you set up on your own. To open an IRA, you can go to just about any broker, bank, mutual fund company, or other financial services provider and ask to open a retirement account. The idea of an IRA is that rather than tying all your retirement savings to a particular employer, you can keep an account throughout your career regardless of whether you stay in the same job or switch employers multiple times along the way.

One key benefit of IRAs is that you're offered a wider range of investments in your retirement account than those offered in most 401(k) plans. Typically, employers have limited selections of investments for workers to use. But with an IRA, you can invest not only in the mutual funds and ETFs that 401(k) plans prefer but also in individual stocks, bonds and bank certificates of deposit. Some IRA providers even let you invest in more exotic assets like precious metals or real estate.

Like 401(k)s, IRAs come in both traditional and Roth forms, and the benefits of each are just about the same as for 401(k) plans. Traditional IRAs give you an upfront tax deduction but require you to include withdrawals in retirement that are taxed at the ordinary income rate corresponding to your tax bracket. Roth IRAs leave out the upfront tax deduction, but they produce tax-free growth over the course of your career, and you generally won't have to pay tax when you take the money out in retirement.

Changes to 401(k)s and IRAs in 2019

Here's a brief summary of the changes that took effect in 2019 for 401(k) accounts and IRAs. All of these changes were automatic, as lawmakers in Congress implemented provisions in the laws that govern IRAs and 401(k) plans that make these changes on a regular basis as conditions warrant.

1. Employee contribution limits to 401(k)s for those younger than age 50 rose $500, to $19,000.

2. Employee 401(k) contribution limits for those 50 or older rose $500, to $25,000.

3. Total combined employee and employer 401(k) contribution limits rose $1,000, to $56,000 for those under 50 and to $62,000 for those 50 or older.

4. The compensation used in the definition of a highly compensated employee rose by $5,000, to $125,000.

5. Contribution limits on IRAs for those younger than age 50 rose $500, to $6,000.

6. Contribution limits on IRAs for those 50 or older rose $500, to $7,000.

7. The income limits for deductibility of traditional IRA contributions rose slightly, with the exact amount of the increase varying by filing status and whether you or your spouse are eligible for a workplace retirement savings plan.

8. The income limits for contributing to a Roth IRA rose slightly, as well.

9. Contribution limits on SIMPLE 401(k) and SIMPLE IRA plans rose $500, to $13,000 for those under 50 or $16,000 for those 50 or older.

We'll look at each of these changes in more detail below.

1. Employee contribution limits to 401(k) plans for those under 50

There's a maximum amount that any employee can contribute to a 401(k) plan. For those who are younger than age 50, the 401(k) contribution limit for 2019 is $19,000. That's $500 higher than it was last year.

There are a couple of things to keep in mind with these numbers, though. First, as with all of these increases, the reason why the number rose in 2019 is tied to inflation. The contribution limit is indexed to the government's Consumer Price Index (CPI) measure, but it's only allowed to go up in $500 increments. Therefore, the limit doesn't always go up each year, but even if it stays flat one year, that year's inflation is taken into account to help with the next year's calculation, as well.

Source: IRS.

2. Employee contribution limits to 401(k) plans for those 50 or older

The rules governing 401(k) plans include what's known as a catch-up contribution. This add-on to the regular contribution limit acknowledges that many workers get a late start in saving for retirement and gives them a chance to boost their savings at an optimal time. With many workers seeing their earnings potential reach a maximum in their 50s -- and with children often grown up and living on their own, reducing family expenses -- it's an ideal time to save as much as you can.

The catch-up contribution for 2019 remains at $6,000. But with the baseline amount rising to $19,000, that means that those 50 and older can save a total of $25,000, up $500 from last year.

3. Total combined employee and employer contribution limits to 401(k)s

On top of the contributions that employees make, employers are also allowed to add retirement plan contributions of their own. Most of these contributions are modest, but in some cases, businesses work with certain employees to maximize their retirement savings. In addition, self-employed workers often take advantage of the higher limits on employer contributions, because in that case, the employer and the employee will be the same person.

There's an upper limit to combined employee and employer contributions to 401(k) plans. The limit for 2019 is $56,000, which is $1,000 higher than it was in 2018. Again, catch-up contributions allow those 50 or older to add an extra $6,000 in catch-up contributions, making their total $62,000.

4. Definition of highly compensated employees within 401(k)s

When 401(k)s were created, lawmakers worried that highly paid executives would use the plans to try to maximize the amount of income they could keep from having to pay taxes on immediately, while essentially ignoring their rank-and-file employees. To prevent that, the 401(k) rules include provisions that basically require employers to make sure that enough ordinary workers participate in their 401(k) plans. Otherwise, those who are considered to be highly compensated employees will face further limits in the amount they're able to save.

This number is also indexed for inflation, and in 2019, it rose to $125,000, up $5,000 from the previous year. For those whose earnings are above that level, you'll need to check in with your HR department each year to make sure you won't have 401(k) contributions involuntarily returned to you.

5. Contribution limits to IRAs for those under 50

Just as with 401(k)s, IRAs have a maximum contribution amount each year. The limit for those under age 50 is up $500 in 2019, coming in at $6,000.

IRA contribution limits are also indexed for inflation and subject to $500 increments, so it's been several years since the limit actually went up. Barring a return to a higher-inflation environment, the baseline IRA contribution limit could remain at $6,000 for several years before its next increase.

Source: IRS.

6. Contribution limits to IRAs for those age 50 or older

Catch-up contributions also apply to IRAs for people who are age 50 or older. The trigger age is the same, with those 50 or older getting to make an additional contribution to their IRAs each year.

What's different about the IRA catch-up contribution is that it's smaller than the corresponding 401(k) figure. With a catch-up amount of $1,000, those 50 or older can save $7,000 in 2019, up by $500 from the prior year.

7. Income limits for deducting traditional IRA contributions

You can always make a traditional IRA contribution, but you can't always deduct the contribution amount from your current-year taxable income. The key question is whether you -- or your spouse, if you're married -- are eligible to participate in an employer-sponsored retirement plan like a 401(k) at work.

If neither you nor your spouse have an employer-sponsored plan available, then the answer's easy. Your traditional IRA contribution is always deductible, regardless of how much money you make.

However, if you're eligible for a 401(k) or other workplace plan, then the following income limits apply:

Data source: IRS.

This can get a bit complicated, but here's an example: You're single and you contribute the $6,000 maximum to an IRA, and your adjusted gross income (AGI) for tax purposes is $65,000. In this case, the range from $64,000 to $74,000 is $10,000 wide, and you're $1,000 away from the bottom end of the range. Therefore, $1,000 divided by $10,000 is 10%, so you'll lose the deduction for 10% of your $6,000 contribution. That leaves you able to deduct just $5,400.

If you don't have access to a workplace retirement plan but your spouse does, then higher limits apply:

Data source: IRS.

With the exception of the married filing separately amounts, all the limits above are $1,000 to $4,000 higher than they were in 2018. The exact amount of the adjustment reflects the change in the underlying price index due to inflation.

8. Income limits for contributing to a Roth IRA

In addition to the income limits for deducting traditional IRA contributions, there are also separate income limits associated with Roth IRAs.

However, the consequences are much higher here, because if your income exceeds the given amounts, then you're not allowed to make a Roth IRA contribution at all. Instead, if you want to make an IRA contribution, you have to choose a traditional IRA in that instance. These figures are up by $2,000 for single filers and by $4,000 for joint filers compared to 2018 levels, due to annual inflation adjustments.

The income limits for Roth IRA contributions are:

Data source: IRS.

Again, the way to interpret the table is to understand that any income level between the two given numbers in the range for your filing status corresponds to a reduced maximum contribution amount.

For instance, if you're married and file jointly and your AGI is $198,000, your income is the midpoint of the given range for your filing status. Accordingly, you'd only be able to contribute half of the annual limit to a Roth IRA -- $3,000 if you're under age 50 or $3,500 if you're 50 or older.

9. Contribution limits for SIMPLE 401(k)s and SIMPLE IRAs

Finally, there's a lesser-known retirement plan alternative that some small businesses and individuals use to boost their retirement savings. SIMPLE 401(k)s and SIMPLE IRAs were designed to give small-business owners the ability to provide a retirement plan for themselves and their employees with less administrative hassle than a full-blown 401(k) plan requires. There are some differences between the two types of SIMPLE plans, but they share their most important attributes.

The trade-off for the ease of use that SIMPLE 401(k)s and SIMPLE IRAs offer is a reduced contribution limit compared to full 401(k) plans. However, the amounts that you're allowed to save in a SIMPLE plan are tied to inflation, and 2019 marked a year in which those contribution limits increased.

For those who are younger than age 50, SIMPLE 401(k) and SIMPLE IRA contributions are allowed up to $13,000 in 2019. That number's up $500 from 2018 levels. A catch-up provision is also available in the SIMPLE plan context for those who are 50 or older, allowing them to put in an extra $3,000 each year -- which brings the total up to $16,000, up from $15,500 in 2018.

Make the most of your retirement savings

It's important to set money aside for retirement, and using a 401(k) account, an IRA, or both can make a big difference in how much money you have when you retire.

By understanding what changes from year to year with these retirement-savings vehicles, you'll be better able to take maximum advantage of the opportunities they offer to boost your overall savings and ensure your financial security in retirement.

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