With all the questions that arise surrounding our economic future, the importance of setting aside money for retirement has never been greater. In order to best maximize the retirement opportunities available, it is worthy to note the amount of money taxpayers can contribute to their retirement plans. Since the cost of living has increased, and so too will the cost of retiring, shouldn't the amount a taxpayer can contribute increase as well? Yes, in certain situations.
Certain cost-of-living thresholds have been met triggering an increase in pension plan contributions while others have not. Here is an overview of what has, and what hasn't, been adjusted heading into 2013:
For employees who participate in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan, the yearly contribution amount has increased from $17,000 to $17,500.
Annual contributions to an Individual Retirement Arrangement (IRA) have been increased from $5,000 to $5,500.
- For traditional IRAs, the deduction is phased-out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $59,000 and $69,000. This is up from the 2012 phase-out amounts of $58,000 and $68,000. For married couples filing jointly, in which the spouse who is covered by a workplace retirement plan is the spouse making the IRA contribution, the phase-out is between $95,000 and $115,000. For singles and heads of household who are not covered by a retirement plan at work, there is no phase-out and the full amount of the contribution can be deducted. This has not changed from 2012. For married couples filing jointly, in which the spouse who is covered by a workplace retirement plan is not the spouse making the IRA contribution, the deduction phase out range is between $178,000 and $188,000. This is an increase from the 2012 range of $173,000 to $183,000. For married individuals who are filing separately, the phase out range is from $0 to $10,000. This remains the same from 2012.
For taxpayers considering making contributions to Roth IRAs, the phase out range is $178,000 to $188,000 for married couples filing jointly and $112,000 to $127,000 for single and heads of household. This is up from the 2012 amounts of $173,000 to $183,000 and $110,000 to $125,000 respectively. For a married individual filing separately who is covered by a retirement plan at work, the phase out is still at $0 to $10,000.
Low to moderate income workers can qualify for the saver's credit (also known as the retirement savings contribution credit) if their AGI is below a certain threshold. For married couples filing jointly the threshold has been increased to $59,000, up from $57,500 in 2012. For heads of household, the credit is available to taxpayers with an AGI under $44,250, up from $43,125 in 2012. Lastly, for single and married filing separately, the credit is available for taxpayers with AGI under $29,500, up from $28,750.
In 2013, the catch up contribution limit for employees 50 years of age or older remains unchanged with participants still being limited to contributions of $5,500 to 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan.
For Simplified Employee Pensions (SEPs), the maximum contribution in 2013 is the lesser of $51,000 or 25% of the employees’ annual compensation.
For SIMPLE IRA plans, the 2013 contribution limit has increased to $12,000 from $11,500.
Have questions about how much you can contribute to your retirement plan? Contact our Cleveland and Akron business and financial advisors at 440-449-6800.