Benjamin Franklin once declared, "Nothing can be said to be certain, except death and taxes." Although I don't have any updates on the former, where taxes are concerned I do have news:
As it does every year, the Internal Revenue Service announced 2013 cost-of-living adjustments to many of the amounts you and your employer can contribute toward your retirement accounts. These new limits mean most people will be able to contribute more money in tax-advantaged accounts for their retirement savings.
Here are highlights of what will and won't change in 2013:
Defined contribution plans.
The maximum allowable annual contribution you can make to workplace 401(k), 403(b), 457(b) and federal Thrift Savings plans increases by $500 to $17,500. Keep in mind these additional factors:
- People over 50 can also make an additional $5,500 in catch-up contributions (unchanged from 2012).
- The annual limit for combined employee and employer contributions increased by $1,000 to $51,000.
- Because your plan may limit the percentage of pay you can contribute, your maximum contribution may actually be less. (For example, if the maximum contribution is 10 percent of pay and you earn $50,000, you could only contribute $5,000.)
Individual Retirement Accounts (IRAs).
The maximum annual contribution to IRAs increases by $500 to $5,500 (plus an additional $1,000 if 50 or older -- unchanged from 2012). Maximum contributions to traditional IRAs are not impacted by personal income, but if your
(AGI) exceeds certain limits, the maximum amount you can contribute to a Roth IRA gradually phases out:
- For singles/heads of households the phase-out range is $112,000 to $127,000 (increased from $110,000 to $125,000 in 2012). Above $127,000, you cannot contribute to a Roth.
- For married couples filing jointly, the range is $178,000 to $188,000 (up from $173,000 to $183,000 in 2012).
- For a married person filing a separate return who is covered by a retirement plan at work, the phase-out range remains at $0 to $10,000.
Keep in mind these rules for deducting traditional IRA contributions on your federal tax return:
- If you're single, a head of household, a qualifying widow(er) or married and neither spouse is covered by an employer-provided retirement plan you can deduct the full IRA contribution, regardless of income.
- If you are covered by an employer plan and are single or a head of household, the tax deduction phases out for AGI between $59,000 and $69,000 (up from $58,000 to $68,000 in 2012); if married and filing jointly, the phase-out range is $95,000 to $115,000 (up from $92,000 to $112,000 in 2012).
- If you're married and aren't covered by an employer plan but your spouse is, the IRA deduction is phased out if your combined AGI is between $178,000 and $188,000 (up from $173,000 to $183,000 in 2012).
- For more details, read IRS Publication 590.
Defined benefit plan limits. The limit on the maximum annual benefit you can receive from a defined benefit plan -- a traditional pension -- increases by $5,000 to $205,000.
SIMPLE plans. The employee contribution limit for these small-employer plans, which resemble 401(k) plans, increased by $500 to $12,000. Those over 50 can make up to $2,500 in catch-up contributions.
Simplified Employee Pension (SEP) IRA plans. In these plans, your employer (or you, if self-employed) contributes directly to an IRA on your behalf. The annual minimum wage for participation remains unchanged at $550 and the maximum contribution allowed is a percentage of pay (25 percent for companies; 20 percent if self-employed) up to an annual pay limit of $255,000 (a $5,000 increase from 2012).
Retirement Saver' Tax Credit. As an incentive to help low- and moderate-income workers save for retirement through an IRA or company-sponsored plan, many are eligible for a Retirement Savers' Tax Credit of up to $1,000 ($2,000 if filing jointly). This credit lowers your tax bill, dollar for dollar, in addition to any other tax deduction you already receive for your contribution.
Qualifying income ceiling limits for the Retirement Savers' Tax Credit increased in 2012 to $59,000 for joint filers, $44,250 for heads of household, and $29,500 for singles or married persons filing separately. Consult IRS Form 8880 for more information.
A few other noteworthy tax-related numbers that change in 2013 include:
- The Social Security taxable wage base is increasing to $113,700, up from $110,100 in 2012. This is the maximum income amount subject to Social Security taxes.
- The gift exemption amount increases by $1,000 to $14,000.
- The amount used to reduce the net unearned income reported on a child's tax return subject to the so-called "kiddie tax" increases by $500 to $1,000.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.