IRS increases retirement contribution limits for 2013

Several studies reveal that many Americans are focusing more seriously on their retirement planning efforts to ensure they don't fall short when they enter their golden years. More workers are enrolled in employer-sponsored contribution plans, namely 401(k)s, and are contributing fervently to these tax-advantaged plans to build their nest eggs. The push toward more responsible retirement and tax planning is partly in response to uncertainty regarding whether lawmakers will allow the Bush tax cuts to expire at the end of the year. In the meantime, however, the Internal Revenue Service has announced the retirement contribution and gift tax rates for 2013.

Next year, the contribution limit for employees who participate in 401(k), 403(b) and other plans will increase to $17,500 from the current $17,000. This represents the second consecutive year the IRS has increased the contribution limit by $500. However, the additional "catch-up" contribution limit for those 50 and older will remain unchanged at $5,500.

The IRS also increased the upper income limit for those who make deductible contributions to traditional individual retirement accounts and are covered by a workplace retirement plan. The 2013 limits will rise to $115,000 for married couples filing jointly and $69,000 for single filers. For IRA contributors who are not covered by a workplace plan, but married to someone who is, the upper income limit increases to $188,000 of modified adjusted gross income from its current $183,000. Finally, the upper income limits for taxpayers contributing to a Roth IRA are set at $127,000 for singles and $188,000 for married couples filing jointly.

Other changes to expect in 2013

In addition to retirement contribution limits, the IRS also announced the gift tax limits will rise to $14,000 for the 2013 tax year from its current $13,000 for singles and $26,000 for married couples filing jointly. This means individuals may gift up to that amount - or $28,000 if filing jointly - without triggering a tax.

Lastly, Americans who are living overseas may also see some benefits. The amount of foreign earnings they can exclude from their taxable income will increase to $97,600 next year, compared to its current $95,100. Because individuals who are living abroad may miss announcements relating to changes in U.S. rates and contribution limits, it can be helpful to work closely with a tax preparer at various points in the year to take advantage of these adjustments as they occur.

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Posted To: Tax Ranger's Blog By: Tax Ranger On: Tuesday, October 23, 2012
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