So with the new year upon us it’s important to take stock of your current investment contributions. The IRS has released the contribution limits for 401(k)s, the government’s TSP, 403(b)s and IRAs.
401(k), the TSP, and 403(b)s
In 2012 the maximum you could contribute to a 401(k), whether it was a Roth or Traditional 401(k), was $17,000. This year the government has increased the limit for employee contributions to $17,500. Because 401(k)s, 403(b)s, and the TSP all function in a similar way, each has had its limit increased by $500.
The catch-up contribution for those 50 and older remains at $5,500. This brings the total contribution limit for those over 50 to $23,000.
While employees under 50 are capped at $17,500, business owners that wish to contribute to employees plans have also seen an increase in their limits. In 2012 the total of employee contributions + matching contributions + any other contributions an employer wanted to make, could not exceed $50,000. In 2013, the maximum has been raised to $51,000. So if you’re a business owner and wish to contribute as much as you can to your retirement account, you can contribute up to $51,000.
IRA Contribution Limits
IRAs have also seen an increase in their limits for 2013. The limits for both the Roth IRA and the Traditional IRA have been increased to $5,500 for 2013. This is the first increase to the contribution limit since 2008, when it increased from the 2007 limit of $4,000 to $5,000. If you are 50 and older the catch up contribution limit remains level at $1,000, which gives you the ability to contribute a total of $5,500 each year.
IRA Income Phase-out Limits
The income phase outs for IRAs have also been increased. The table below summarizes the changes for single filers and married filing jointly:
Note: In this table the Married Filing Jointly line for the Traditional IRA assumes that at least one spouse is covered by an employer sponsored retirement plan.
So, If You Want To Max Out Your Contributions…
To max out your contributions, contact your HR department and change the withholding amount for your employer sponsored plan (401(k), TSP, 403(b)) so that you may contribute the limit for 2013. If you wish to max out your IRA, it’s a little more complex. If your income is above the phaseout limit, then you cannot contribute to an IRA. If you are under the phaseout range for the type of IRA you want to contribute to, then contribute the maximum that is allowed ($6,500 for those over 50.) However, if you fall within the phase-out range, you’ll need to do a quick calculation for your maximum contribution.
As always if you have any questions, please post them in the comments!
Happy New Year!