IRA, 401(k) contribution limits increase for 2013

Basket full of gold eggs

Good news, savers. You can put more into your retirement accounts in 2013.

The limits for IRAs and 401(k) plans have increased.

You can now drop $5,500 into your Roth or traditional IRA, up from $5,000. If you're at least 50, you can deposit $6,500 a year.

Limits on 401(k) plans have been raised, too, from $17,000 to $17,500. Here, though, the limit for those at least 50 making catch-up contributions hasn't changed.

That'll stay at $23,000.

A $500 increase might not sound like a lot, but if you max out every year, that's thousands of dollars more you can deposit into retirement savings throughout your career — and thousands of dollars more that will compound and grow over time.

And remember, you pay no taxes on what you save or what you earn from your investments until you begin withdrawing money from your account.

This should be a consideration every year but may be more important in 2013, considering taxes will increase for all workers, not just high-wage earners.

Put more in retirement savings, and that's less of your income that will be taxed today.

How Much Are We Saving?

Contribution Annual Average
IRA $3,930
401(k) – employee share $5,750
401(k) – employer match $3,270
Source: Fidelity Investments, 2011 retirement savings contributions

However, the increased limits mean nothing if American workers won't — or can't — meet them. Data show most of us don't come close to maxing out our annual contribution limits.

When deciding where to place your retirement money, keep in mind there are income restrictions for individual retirement accounts.

How much you make, and whether you participate in a 401(k) plan where you work, can reduce the amount of your contribution to a traditional IRA that can be deducted from your taxable income.

That's important because being able to deduct contributions and lower your current tax bill is a major benefit of traditional IRAs.

If you do contribute to a 401(k) plan, the income guidelines for deductibility depend on your tax filing status.

Income Single or head of household Married (filing jointly)
<$59,000 Full deduction Full deduction
$59,000 to $69,000 Partial deduction Full deduction
$69,000 to $95,000 No deduction Full deduction
$95,000 to $115,000 No deduction Partial deduction
>$115,000 No deduction No deduction

Savers who do not contribute to a 401(k) plan at work must follow a different set of rules.

Your contribution is fully deductible, regardless of income, if you're single or a head of a household or married and filing jointly.

Married couples with one spouse participating in a 401(k) plan can:

There are income limits for Roth IRAs, as well.

Remember, contributions to Roth IRAs are made with after-tax dollars, so none of it is tax-deductible.

But allowable contributions decrease as income goes up.

Income Single or head of household Married (filing jointly)
<$112,000 Full contribution Full contribution
$112,000 to $127,000 Partial contribution Full contribution
$127,000 to $178,000 No contribution Full contribution
$178,000 to $188,000 No contribution Partial contribution
>$188,000 No contribution No contribution

If you're debating how much you need to contribute, our retirement calculator can help you set — and achieve — your savings goal.

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