For Women & Co. by Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management
Federal taxes are climbing for many folks in 2013. But thanks to inflation adjustments, so too are some key tax thresholds. You can now save more for retirement, make larger gifts without worrying about the gift tax, and even pay a little less tax on your children's investment gains. Here are some key changes:
• You can contribute up to $17,500 to your 401(k) in 2013, a $500 increase over 2012. The catch-up contribution available to those age 50 and up remains unchanged at $5,500. Still, the 50-plus crowd can now make a maximum 401(k) contribution of $23,000--and, on top of that, they could receive a matching employer contribution.
• The maximum contribution to a traditional or Roth Individual Retirement Account is now $5,500, a $500 increase. If you're 50 or older, you can contribute an additional $1,000, the same as last year. Keep in mind that, if you haven't yet made your full IRA contribution for 2012, you have until April 15 to do so, but last year's contribution limits apply.
• If you own a small business or you're self-employed, you can contribute as much as 25% of annual compensation to a SEP IRA, up to $51,000. That's a $1,000 increase over 2012. The employee contribution limit has also increased for SIMPLE IRAs, another retirement plan popular with small businesses. That contribution limit is now $12,000, which is a $500 increase.
• The annual gift-tax exclusion climbs to $14,000, up from $13,000 to 2012. This is the sum you can give to as many folks as you want in 2013 without worrying about the federal gift tax. Thanks to the increase in the gift-tax exclusion, a parent or grandparent could invest as much as $70,000 in a child's 529 college-savings plan in 2013 and count it as his or her gift for the next five years. If the parent or grandparent dies before the five years are up, a prorated share of the gift will be added back to his or her estate.
In 2013, the amount of unearned income received by minor children that isn't subject to federal income taxes is $1,000, up from $950 in 2012. This is a key number for parents who set up custodial accounts for their children under their state's Uniform Gifts to Minors Act or Uniform Transfers to Minors Act.
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