Workers will be able to defer taxes on an additional $500 in their 401(k) and IRA plans in 2013. Retirement accounts will also be tweaked in a few other important ways. Here's a look at the retirement account changes you can expect to see next year.
Larger 401(k) contribution limit. The contribution limit for 401(k) plans, 403(b) plans, and the federal government's Thrift Savings Plan will increase from $17,000 in 2012 to $17,500 in 2013. However, the catch-up contribution limit for employees age 50 and older will remain unchanged at $5,500. "One of the best ways to take advantage of the increased limits is to perform a year-end checkup of your 401(k) and make sure that you are contributing the maximum allowable by law," says Garth Scrivner, a certified financial planner and senior investment counselor for StanCorp Investment Advisers in Albuquerque, N.M. "One strategy to avoid the pain of increased savings is to consider giving your 401(k) contribution a raise at the same time your annual pay raise occurs."
Higher IRA contribution limit. The IRA contribution limit for workers who meet the income requirements will increase from $5,000 in 2012 to $5,500 in 2013. The catch-up contribution limit for older workers is still $1,000, which is unchanged from 2012. "The enhanced limits have the additional benefit of increasing current tax deductions (assuming pre-tax salary deferrals) or increasing the amount of client's tax-free investments (assuming Roth salary deferrals)," says Matthew Davis, a certified financial planner for Davis Financial Management in Leawood, Kan.
New 401(k) fee information. Next year is the first full year that 401(k) participants will receive quarterly and annual 401(k) statements listing the fees charged to their accounts and showing returns compared to a benchmark, due to new Labor Department regulations that went into effect in 2012. "Next year, the biggest changes will be a continuation of the new disclosure rules regarding fees that are just hitting participant statements now," says Rick Meigs, president of 401khelpcenter.com. "You are going to get an annual notice and you are going to start seeing more disclosure of fees and costs on your quarterly statements." These statements can be used to evaluate whether the funds you are investing in are worth the fees you are paying.
Increased IRA income limits. The tax deduction for people who have a retirement plan at work and make traditional IRA contributions is phased out for singles and heads of household who have a modified adjusted gross income between $59,000 and $69,000 in 2013, up from $58,000 and $68,000 in 2012. "Many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment," according to the IRS announcement. For couples in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is between $95,000 and $115,000 in 2013, up $3,000 from 2012. For IRA contributors who don't have access to a workplace retirement plan, but are married to someone who is covered, the deduction is phased out if the couple's income is between $178,000 and $188,000, $5,000 more than in 2012.
Roth IRA limits grow. Single people and heads of household can contribute to a Roth IRA until they earn between $112,000 to $127,000 in 2013, $2,000 more than in 2012. For couples, the modified adjusted gross income phase-out range for making contributions to a Roth IRA is $178,000 to $188,000, up from $173,000 to $183,000 in 2012. However, people who earn above these limits may still be able to contribute to a Roth IRA by converting some of their traditional IRA assets to a Roth. "For many clients who are not eligible to fund Roth IRAs due to income limitations, the increased limits provide an opportunity to add to their tax-free investment buckets through Roth IRA conversions," says Davis.
[Read: How to Get the Saver's Credit.]
Higher saver's credit income limits. Couples can earn up to $1,500 more next year and still claim the saver's credit, a tax credit for retirement savers worth up to $1,000 for individuals and $2,000 for couples. The modified adjusted gross income limit for couples is $59,000 in 2013, up from $57,500 in 2012. For singles, the limit will jump from $28,750 in 2012 to $29,500 in 2013. And heads of household can claim the credit until they earn $44,250, $1,125 more than in 2012.
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