Get ready to save some more money! For the second year in a row, the IRS has increased the 401K contribution limit by $500. In 2013 the 401K contribution limit will be $17,500, pre-tax. For 2012 the limit was $17,000, pre-tax. Of course, your 401K contributions come out of your paycheck before you have taxes taken out. This lowers your taxable income and reduces your effective tax rate. The catch-up contribution limit is remaining the same at $5,500 for workers over the age of 50. This means that a worker over the age of 50 can put total contributions of $23,000 into their 401K in 2013. This is great news for savers in our economy who are trying to build a bigger nest egg for retirement.
The more you can put away now, the more you’ll have to retire on later. I recommend applying part of your pay raises each year to increased contributions into your 401K. That way you’ll never miss the extra money going into savings, and you’ll still have more take-home pay.
Some other tax changes coming in 2013 are:
- The amount you can gift to anyone without having to worry about gift taxes is being increased from $13,000 to $14,000.
- If you’re a U.S. citizen living abroad, the amount of foreign earnings you can exclude from your taxable income will rise from $95,100 to $97,600.
- The Social Security Administration to announce earlier this week that Social Security recipients will be given a 1.7% boost to their monthly benefits next year.
Social Security checks will be bigger in 2013, which has not happened in a few years. However, the government has not yet announced all of the changes to Medicare for 2013. We do not yet know what the new Medicare premiums will be for people on Medicare. Currently, the Part B premiums are $99.90 per month for most people. This can be higher if you have an income above certain thresholds. This amount is very likely to go up, but we’ll probably have to wait until after the Presidential election to find out what they will be. We wouldn’t want to have any angry retirees going to the polls now would we. More on this to follow.