With another tax season in the books, many Americans are now thinking about how the financial decisions they make in 2018 will affect them on Tax Day next year and well into the future.

One area in which taxes have long been a central focus is retirement planning. The hallmark of the workplace 401(k), one of the most popular vehicles for saving for retirement, is the tax advantage it can offer. Traditional 401(k)s are funded with pre-tax dollars, so saving in them means that in addition to putting away money for retirement you are also lowering your pre-tax income, which may help lower your tax bill. In 2018, the maximum 401(k) contribution amount has increased to $18,500, up from $18,000 in the previous few years. On top of that, savers aged 50 and over can sock away another $6,000 as a catch-up contribution.

For those who prefer to save for retirement with after-tax dollars, some companies offer their employees the choice to contribute to a Roth 401(k) instead. Because you are contributing after-tax dollars with the Roth option, you won’t have to pay taxes on your withdrawals in retirement, including any investment growth, after you meet a few requirements. This option often makes sense for young workers who anticipate retiring in a higher tax bracket than the one in which they began their career.

Individual Retirement Accounts (IRAs) offer another avenue for saving for retirement beyond investing in a 401(k), and contributions to a traditional IRA may also be used to reduce your taxable income when filing your taxes, depending on your salary. The 2018 contribution limit for an IRA is $5,500, or $6,500 if you’re 50 or older. Similar to 401(k)s, IRAs also are available in a Roth version, meaning the account is funded with after-tax money but distributions are tax-free in retirement, after requirements are met.

2018 Changes From The IRS

So what’s new for 2018? For one, the IRS has announced some changes to the rules around IRAs. First, the income ranges that determine eligibility to make deductible contributions to traditional IRAs and to contribute to Roth IRAs have increased. These ranges vary depending on whether the taxpayer is single or married as well as whether they have access to a retirement plan at work.

The IRS has also increased the income limit for the Retirement Savings Contributions Credit, commonly known as the Saver’s Credit, which offers eligible low- and moderate-income workers a credit for saving for retirement – up to $2,000 for individuals or $4,000 for married couples filing jointly.

2018 Changes Under The New Tax Law

While there was a lot of speculation about what might be different when saving for retirement under the Tax Cuts and Jobs Act, 401(k)s and IRAs ultimately came away mostly unscathed. However, what has changed directly impacts tax planning around IRAs.

In short, if you convert a traditional IRA to a Roth IRA—an action that results in having to pay taxes now but allows for tax-free income in retirement—you no longer have the option to convert it back. Like choosing a Roth 401(k), a Roth conversion for your IRA might make sense if your current tax rate is lower than your anticipated tax rate in retirement or if you have a significant drop in income.

When you change a traditional IRA to a Roth IRA, you must pay income taxes on the full amount you convert. Under the old law, you were able to “recharacterize,” or reverse, the conversion if it bumped you into a higher tax bracket or made your tax bill higher than you could afford, or if your investments lost value and you’d be left to pay taxes on investment gains you wouldn’t be able to realize. This ability to recharacterize has been eliminated under the new law.

What Hasn’t Changed

While retirement accounts can play a positive role in your overall tax strategy, keep in mind that there are also tax penalties for tapping into them too soon, since these funds are meant to be set aside for retirement. If you withdraw money from your 401(k) plan before age 59-1/2, you’ll likely face a 10 percent federal tax penalty. In addition, the Internal Revenue Service will take 20 percent of your withdrawal as an advance on your tax bill. The same goes if you cash out your 401(k) when you leave your job. 

There can be negative tax consequences associated with taking 401(k) loans as well. If you leave your job and don’t pay back the loan, your outstanding balance is treated as a withdrawal, spurring a tax bill and potentially an additional 10 percent federal tax penalty.

It’s clear that, given today’s most commonly used retirement savings vehicles, retirement planning and tax planning are inextricably linked. Even if you’ve already filed your 2017 return, it pays to know how the actions you take with your retirement plans this year will impact your tax bill next spring. My best piece of advice as you’re navigating these decisions is to ask for help. Many workplace 401(k) plans include professional saving and investing advice services or other managed account services, and more employers than ever before are offering financial wellness programs. While both retirement and tax planning can be tricky for savers of all ages, a little guidance may go a long way in easing the challenge.

Catherine Golladay is senior vice president of 401(k) participant services and administration, Schwab Retirement Plan Services.