When planning for retirement, you need to know what your contribution limits are. And wouldn’t you know it, the maximum contribution limits for 2013 have increased.
If you’re somewhat new to the retirement savings game, it’s important to know that the IRS limits annually the amount of money you can add to your individual retirement accounts and to your employer-defined accounts.
Knowing about yearly contribution limits helps you develop a retirement savings plan so you don’t get stuck at 65 with nothing to show for your years of hard work and so you can also make some smart end of year tax moves to save money on your taxes.
2013 Retirement Contribution Limits
The IRS decided to adjust the retirement contribution limits for the 2013 tax year, increasing the limits for both individual retirement accounts and employer-defined retirement accounts. For the individual retirement accounts, such as traditional IRAs and Roth IRAs, the 2013 Contribution Limit is $5,500 – up from $5,000 in 2012.
For employer-defined retirement accounts, such as 401(k), 403(b), or 457(b), the Elective Deferral Limit is $17,500, which is up from $17,000 in 2012. The Elective Deferral Limit for SIMPLE 401(k)s and SIMPLE IRAs stands at $12,000 – again, this marks an increase from $11,500 in 2012.
The deadline for contributions to your IRA accounts in any year is April 15 of the following year, so you can still make deposits into your IRA accounts up until April 15, 2014 and fall under the contribution limits of the 2013 tax year, which also means tax savings on your 2013 taxes.
You have until December 31 to contribute more to your employer-defined retirement plan to save more on your 2013 taxes.
For the Self-Employed
The contribution limit for SEP IRAs (which are more common among the self-employed) works a little differently. With this type of retirement account, you may contribute $51,000 or up to 25% of your total compensation – if that number is less than $51,000.
For the 50-and-Over Crowd
If you’re 50 years old or older, (and therefore theoretically closer to retirement) you are eligible for something the IRS calls the Catch-Up Contribution Limit. If you fall into this category, you are allowed to make deposits in excess of the normal contribution limits stated above.
Here’s what the catch-up limits look like:
- For a 401(k), 403(b), 457(b) and SARSEP, you may make additional deposits up to $5,500 annually.
- For a SIMPLE 401(k) and SIMPLE IRA, the increased catch-up limit is an additional 2,500.
- And for a traditional IRA or a Roth IRA, your increased catch-up limit is $1,000.
If you started saving for retirement a little late, Uncle Sam is trying to help you catch up to your retirement goals – hence the name.
Why Meet Your Contribution Limits
If you have the available funds, making financial deposits that meet the contribution limit is an effective way to lower your taxable income. Not only are you saving for your retirement, but you’re lowering the total amount of money the government can get it’s hand on in the current tax year. It’s a win-win.
Meeting your contribution limits also ensures that you are doing everything in your power to reach your financial and retirement goals. And if you’re wavering on what those goals actually are, the contribution limits help give you something to shoot for – a yearly bulls eye on your retirement planning, so to speak.
Saving for your retirement always makes sense. Now that you know the limits, go ahead and make your retirement account contributions, resting easy in the knowledge that you’re taking control of your financial future.