Contributing to a retirement plan is one of the best tax shelters available to you during your working years. Recently, the IRS announced that many of the retirement savings limits will increase for 2013.
Employer Sponsored Plans
Most working professionals have access to a 401(k) plan or a 403(b) plan at work. Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred. For 2013, you can contribute up to $17,500 into a 401(k) or 403(b) plan through salary deferrals, up from $17,000 in 2012.
Looking to set your 2013 monthly budget? To max out your 401(k) or 403(b) salary deferrals next year, instruct your employer to withhold $1,458.33 per month from your pay.
Catch-up contributions remained the same as they were in 2012. Anyone 50 or older by December 31, 2013 can contribute an extra $5,500 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $23,000, or $1,916.66 per month.
Many smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE’s work just like 401(k) plans, which means it’s up to you to fund the bulk of this retirement savings account through salary deferrals. For 2013, the maximum contribution into your SIMPLE increases to $12,000, or $1,000 per month. Anyone 50 or older by December 31st can sock away an additional $2,500 in 2013, for a total annual contribution of $14,500, or $1,208.33 per month.
Are you self-employed? Each year, you can contribute up to 20% of your net self-employment income into a SEP IRA. The maximum contribution for 2013 is $51,000, or $4,250 per month, up from $50,000 in 2012.
Solo 401(k)’s are an attractive alternative to many sole proprietors and business owners with no full time employees who work more than 1,000 hours per year besides a spouse. If you don’t have access to a 401(k) or 403(b) plan through another employer, the Solo 401(k) plan makes it easier for you to hit next year’s max of $51,000. If you’re 50 or older, your maximum contribution into a Solo 401(k) jumps to $56,500, or $4,708.33 per month. You have until December 31st to set up a Solo 401k for 2012.
The IRS also announced that the maximum amount of wages and net self-employment income that you can use to determine certain retirement plan contributions has increased to $255,000 for 2013, up from $250,000 in 2012.
Don’t forget about IRAs. Even if you’re covered under a retirement plan at work, you and your spouse can each contribute up to $5,500 (up from $5,000 for 2012), or $458.33 per month, into a traditional IRA or Roth IRA next year, as long as your combined wages and net self-employment income exceeds the total amount contributed. Anyone 50 or older can contribute an extra $1,000, increasing the total allowable contribution to $6,500, or $541.66 per month.
Along with a $500 increase to IRAs for 2013, there is more good news for people looking to contribute to a Roth IRA . The amount you can earn and still contribute to a Roth has increased by $5,000 for married couples and by $2,000 for single individuals, as follows:
|Single Individuals||Married Couples|
If your income is too high for a Roth, don’t forget that the rules changed a few years back, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA. This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts. For more information, please check out the article, The Re-Emergence of Non-Deductible IRAs, available on our March 2007 Newsletter or Keep on Converting in 2011 and Beyond, available in our March 2011 Newsletter.
And if you’re married and your spouse isn’t covered under either an employer sponsored or self-employed retirement plan during the year, the 2013 phase-out range for your spouse making a deductible IRA contribution has increased to $178,000 – $188,000, which is identical to the Roth IRA phase-out limits.
Re-Set Your 2013 Budget
Most people won’t be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. With 2012 winding down, now’s the time to start thinking about resetting your monthly retirement savings goals for 2013.
2013 Maximum Retirement Account Contributions
Retirement Savings Option
|Under the age|
|50 or older by December ? 31st|
401(k) or 403(b)