First Person: I'm Not Maxing Out My Retirement Account in 2013

Yahoo Contributor Network

If the government had continued the tax holiday, I may have been able to take advantage of the new contribution limits for 401(k) and IRA accounts. With my take-home pay decreasing by almost $100 a month, I won't have that financial cushion.

According to a recent article by U. S. News & World Report, workers can now contribution $17,500 to their 401(k), which is $500 more than last year.

The IRA contribution limit has also increased by $500 from $5,000 to $5,500.

Reducing my 401(k) contributions

Although I have never had enough money to max out my 401(k), I do try to save at least 5 percent of my income into my 401(k) because I like the mutual fund and other investment choices offered by my company-sponsored employment plan. While I haven't had a lot of luck with the target-date funds, I have noticed solid returns on mutual funds that include stocks in small and mid-size companies. In 2013, I'll reduce my 401(k) contributions so I can save more into my Roth IRA.

Increasing my Roth IRA contributions

Even though IRS has increased the contribution limit for the Roth IRA, it will be a stretch to save the approximately $450 a month to max out the account. Since my husband also has a Roth IRA, we would need to take about $900 out of our monthly budget in order to max out both Roth IRA accounts. Even though we are freeing up some cash flow by refinancing our home, we can't afford $900 a month for just one piece of our retirement savings puzzle.

Investing outside our retirement accounts

This year, I hope to be able to save and invest in a discount brokerage account that is not part of our retirement savings. I have been burned in the past by saving too much for retirement and not enough for unexpected emergencies and bills. By investing in a regular investment account, we can still create an allocation plan that makes sense for this stage in our lives. I plan to keep 50 percent of our money in more conservative investments such as exchange traded funds that pay dividends and 50 percent in more aggressive positions.

Making too much money

One of the reasons financial advisors tell young people to invest in a Roth IRA is because they know their incomes will rise as they get older. The IRS income limits has increased for 2013. Married people who file jointly can have a modified gross adjusted income of $178,000, which is up from $173,000 in 2012. I don't anticipate ever making so much money that I can't qualify to contribute to a Roth IRA. In fact, I received a pay cut in 2012 rather than a raise. However, it's nice to know I can still qualify to contribute to a Roth IRA if our efforts to climb the economic ladder prove successful.

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