Looking ahead to 2013 – contribution limit changes

With so much uncertainty about taxes for 2013, your employees may get a serious case of ‘every little bit counts’ when it comes to deferring taxes through retirement plans. The IRS cost-of-living adjustments for 2013 were released on October 18th, and I wanted to pass those on to you in light of my last post about contribution limits and changes for 2012. Here are the major highlights for 2013 numbers:

  • Total defined contribution limits – $51,000 (a $1,000 increase over 2012)
  • Elective deferral limit – $17,500 (a $500 increase over 2012) – includes 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan
  • Defined benefit limit – $205,000 (a $5,000 increase over 2012)
  • The IRA contribution limit increases to $5,500 from $5,000.
  • Catch-up contributions remain the same at $5,500 for age 50+
  • Definition of a highly compensated employee is $115,000 – the same as 2012.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $59,000 and $69,000, up from $58,000 and $68,000 in 2012. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $95,000 to $115,000, up from $92,000 to $112,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $178,000 and $188,000, up from $173,000 and $183,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

There are many caveats to the IRS code. While not mandated by a regulation, making sure that you communicate the nuances to your employees keeps you in good standing as a fiduciary. For more detailed information, view the IRS announcement.