Certified Financial Planners generally encourage contributing as much as possible to retirement accounts: IRAs, 401(k) plans, 403(b) plans, etc. Contributing to these accounts not only sets aside savings for retirement, but helps to reduce taxes. However, the IRS limits the amount you can contribute each year and can change those limits annually, usually to keep pace with inflation. Learning about the 2013 contribution limits could help you save more this year and give your retirement plan a boost.
How much can one contribute to a traditional IRA and
- In 2013 the contribution limit is $5,500. (It was $5,000 in 2012.)
- Individuals age 50 or older are allowed to make an additional “catch-up” contribution of $1,000 (the same amount as last year).
- The IRS has established a phase out, a gradual reduction of one’s eligibility to contribute, based on one’s annual gross income (AGI), starting at these
- – 2013: Married – $95K; Single or head of household – $59K
- – 2012: Married – $92K; Single or head of household – $58K
- – Married – $178K; cannot contribute if AGI is over $188K.
- – Single or head of household – $112K; cannot contribute if AGI is over $127K.
- – Married – $173K; cannot contribute if AGI is over $183K
- – Single or head of household – $110K; cannot contribute if AGI is over $125K
How much can one contribute to a SIMPLE IRA for small businesses?
- In 2013 the contribution limit is $12,000. (It was $11,500 in 2012.)
- The catch-up amount allowed for individuals age 50 or over is $2,500, the same as last year.
How much can one contribute to a 401(k), 403(b) and most 457 plans?
- In 2013 employees have an elective deferral (contribution) limit of $17,500. (It was $17,000 in 2012.)
- The catch-up amount allowed for individuals age 50 or older is $5,500, the same as last year.
Tips for success
- Take advantage of the raised contribution limits! Unfortunately, not everyone is able to do this. With a 401(k), for example, taking advantage of the maximum limit would mean a contribution of about $1,450 a month (or $1,900 with catch-up).
- If you are not able to contribute to the limit, and your employer offers matching funds, do at least contribute the minimum necessary to take full advantage of your employer’s matching contribution. If there is no match offered, consider contributing 10%+ of your salary.
- Review your retirement accounts and rebalance annually.
- If your plan has limited investment options, you might consider an “In-Service Withdrawal”.
- Talk with your Certified Financial Planner to be sure you are contributing most effectively.
– Review, rebalance, and evaluate the efficiency of your accounts; and
– Discover the effect on your retirement plan of maximizing your contributions.