Retirement benefits will change in a variety of important ways in 2013. Workers will be eligible to contribute $500 more to their retirement accounts, and get new information about the fees that are deducted from their savings. Retirees will receive slightly bigger Social Security checks and improved Medicare Part D coverage in exchange for modestly higher premiums. Social Security taxes will also increase for many workers if the payroll tax cut expires. Here's a look at retirement-benefit changes you can expect to see next year:
Higher 401(k) and IRA contribution limits. The contribution limit for 401(k)s, 403(b)s, and the federal government's Thrift Savings Plan will increase from $17,000 in 2012 to $17,500 in 2013. The IRA contribution limit will also grow by $500 to $5,500 in 2013. However, catch-up contributions available to those age 50 and older will remain unchanged for both types of accounts, at $5,500 for 401(k)s and $1,000 for IRAs.
More 401(k) fee information. Retirement-account participants will receive new quarterly and annual 401(k) statements listing the expense ratios of each investment option and other fees charged to their accounts including commissions, sales charges, and recordkeeping fees, due to new Labor Department regulations enacted in 2012. Retirement savers will also get information showing how their investment returns compare to a benchmark. "If there are lower-fee funds within the fund choices, I would hope that would be an incentive to change within the fund choices," says Michele Clark, a certified financial planner for Clark Hourly Financial Planning in Chesterfield, Mo.
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Increased Roth IRA income limits. The earnings limit for Roth IRA contributions will increase by $2,000 to $127,000 in 2013 for single people and heads of household. The modified adjusted gross income phase-out range for couples interested in making contributions to a Roth IRA will increase by $5,000 to between $178,000 to $188,000. However, many people are able to get around these income limits by converting their traditional retirement-account balance to a Roth.
Better access to the saver's credit. More low-income workers who save for retirement in 401(k)s or IRAs may be able to claim the saver's credit, a tax credit worth up to $1,000 for individuals and $2,000 for couples. The modified adjusted gross income limit for couples will increase by $1,500 to $59,000 in 2013. The income limit will grow to $29,500 for singles and $44,250 for heads of household next year.
Bigger pension insurance limits. Private-sector traditional pension plans are insured by the Pension Benefit Guaranty Corporation (PBGC) up to certain annual limits. The maximum guaranteed benefit for a 65-year-old retiree will increase from $55,840.92 in 2012 to $57,477.24 in 2013. As in previous years, the maximum amount the PBGC will pay out if a pension plan fails is lower for early retirees and higher for people who delay claiming their pension benefit past age 65.
Larger Social Security checks. Social Security payments will increase by 1.7 percent in 2013. The average Social Security check is expected to grow by $21 due to this cost-of-living adjustment. The average benefit for couples is expected to climb from $2,014 in 2012 to $2,048 in 2013.
Higher Social Security taxes. The temporary payroll tax reduction, which cut Social Security taxes from 6.2 percent of income to 4.2 percent, is scheduled to expire at the end of 2012, resulting in a tax hike for almost all workers. The maximum amount of earnings subject to Social Security taxes will increase from $110,100 in 2012 to $113,700 in 2013, which is expected to increase the payroll-tax bill for approximately 10 million high earners.
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Social Security will retire paper checks. The U.S. Treasury is scheduled to stop mailing paper Social Security checks on March 1, 2013. All benefit payments will then be directly deposited into a bank or credit union account or applied to a Direct Express Debit MasterCard. Retirees who do not select an electronic payment option will be automatically enrolled in the prepaid debit card.
Larger Medicare Part B premiums. The Medicare Part B premium for most Medicare beneficiaries will increase from $99.90 per month in 2012 to $104.90 in 2013. The Part B deductible will also increase in 2013, by $7 to $147. Retirees with large incomes totaling more than $85,000 for individuals and $170,000 for couples must pay higher Part B premiums.
Additional Medicare Part D coverage. The average Medicare Part D premium is estimated to be $40.18 in 2013 (assuming beneficiaries remain in their current plan), up 7 percent from $37.57 in 2012, according to a Kaiser Family Foundation analysis of 2013 Medicare Part D offerings. The maximum possible deductible Medicare Part D plans are allowed to charge will increase by $5 to $325 in 2013. "It makes a lot of sense for people in Part D plans to take another look at the options available in their area and compare their current coverage to what else is out there," says Juliette Cubanski, a Medicare policy analyst at the Kaiser Family Foundation. However, seniors will also get additional drug coverage next year, due to provisions of the Affordable Care Act. Seniors who reach the donut hole gap in prescription drug coverage in 2013 will get a 52.5 percent discount on brand-name drugs and 21 percent off the cost of generic drugs, up from 50 percent and 14 percent, respectively, in 2012.
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