There are reasons for relief in some quarters since the IRS release its official 2012 regulations for 401k, 403b, and other retirement plan contribution limits.
This information is renewed annually based the 2012 cost of living adjustment figures.
The good news is that the cost of living adjustment (COLA) numbers have increased a bit.
This makes an increase after a three year period of relative stability in contribution limits. Back in 2011 there were some fears circulating that the limits were supposed to be lowered.
Those fears never came into fruition as 401k limits remained flat.
Each October the limits are re-calculated using a formula that is based on the inflation rate (which is connected to the COLA figures) in the third quarter versus the previous year’s quarter performance.
401k Contribution Limits for 2013 (Traditional and Roth)
With that said, it’s time to talk about possible affects on your 401k or other retirement plan. In other words, what is the maximum amount you can contribute in 2013? It increase $500 to $17,500 for people aged 50 and younger. There is an additional catch-up contribution available as well. It holds at $5,500. The same limits apply to other plans, such as the 403b or the Thrift Savings Plan.
Keep in mind that your 401k maximum contribution limit is based on the combine total that you can make annually for all of your plans, regardless of whether they are standard plan configurations or Roth 401ks. The matching contributions made by your employer are not included in these final 401k contribution limits. This applies even if you contribute the maximum every year. The matches are added despite the 401k limits.
| Year | 401(k) Maximum | Catch-Up Contribution | Maximum Allocation |
|---|---|---|---|
| 2013 | $17,500 | $5,500 | $51,000 |
| 2012 | $17,000 | $5,500 | $50,000 |
| 2011 | $16,500 | $5,500 | $49,000 |
| 2010 | $16,500 | $5,500 | $49,000 |
| 2009 | $16,500 | $5,500 | $49,000 |
| 2008 | $15,500 | $5,000 | $46,000 |
As a reminder, the above limits apply to both Traditional 401k’s and Roth 401k’s
Make Sure You’re Doing Your Part
Despite the fact that these higher limits have been available since 2009, many workers haven’t used them. Much of this can be explained by the market crash. Few people were ready to assess their 401ks in such a dismal economic environment. They chose to ignore this option.
Still, employer-sponsored 401ks and IRAS remain a good form of long-term retirement investment. It’s largely a matter of compound interest, generous employer matches, and associated tax deductions. If you will use the new 2013 to plan for higher contributions, you can end up earning better retirement savings in the future.
Such policies may provide people with options for creating better tax strategies when taxes are on the rise. It may also be of service once the Bush-era tax cuts finally expire. The sluggish performance of the economy and other forecasts suggest that inflation may remain in the 2% range for a while. What this means for 401k limits is that the rate’s generally flat growth rate will lead to a similar percentage increase in future retirement account contribution limits.
Start saving for your future today!
{ 7 comments… read them below or add one }
Higher limits are one way to keep money away from Uncle Sam/IRS. Sadly as you have pointed out a lot of people don’t take advantage.
Also – like the pic. What kind of apeture did you use for that? Nice.
@ Andy My buddy is a professional photographer and he took the pic. That means I have no idea!
Hi Jeff Rose,
Great post. Its good to hear the good news that COLA numbers are increased a bit this year and there is no fear that limits will be lowered as 401k remains flat. Thanks for the information Jeff
We have been looking forward to a higher 401K limit each year and we are taking advantage of it! Thanks for sharing.
http://www.dailyfinance.com/2013/01/10/fiscal-cliff-deal-401k-bonus/
Any info on this new relax of old 401 conversion to roth regs?
“The Roth 401(k) has been around for more than a decade, but old tax laws blocked workers younger than 59½ from making the switch. Thanks to the new deal, that little stipulation will be gone in a few months”
Hi Jeff ,
I’m 61 years old and am maxed out at work my 401k plus make up.
Can I contribute to a Roth outside my plan and how much for 2012 and 2013 ?
@Ernest What you put in your 401k is irrelevant. The Roth limits are subject to your AGI solely. If you’re below the limits you can contribute to a Roth IRA.