The IRS increased the amount you can save for retirement with a slight boost to the 401k contribution limits for 2013. Every year the IRS must calculate cost of living adjustments for the 401k and other retirement related plans when the CPI (Consumer Price Index) hits a certain threshold.
This year the CPI was high enough to call for an adjustment to some, but not all the 401k limitations. The only change was in the maximum contribution limits.
Maximum 401k Contribution Limits
Starting in 2013, the IRS will increase the 401k and Roth 401k contribution limits to $17,500. That’s a $500 increase over the 2012 401k contribution limits. Which is about $42 more per month you can put away for retirement.
A few things to note. Some companies offer both a 401k and Roth 401k plan. If you fall into this category, the contribution limits are not per plan. You can contribute to one or both plans, but the total amount can’t exceed the $17,500 maximum ($23,000 for those 50 or older).
The same goes for anyone with multiple employers. You are stuck only saving the maximum even if your two jobs both offer 401k plans.
| 2013 Limits | Max Contribution |
Catch Up Contribution (Age 50+) |
| 401k |
$17,500 | Additional $5,500 ($23,000 total) |
| Roth 401k |
$17,500 | Additional $5,500 ($23,000 total) |
These contribution limits also apply to 403b plans, 457 plans and the Thrift Savings Plan.
401k Catch Up Contributions
The catch up contribution amount did not change from 2012. However, anyone who falls into the 50 years old or older crowd can add an extra $5,500 to their 401k savings. It’s a nice opportunity if you’ve fallen behind the last few years or just want to stash more money away.
Don’t forget you also have the benefit of IRA catch up contributions too. And your IRA contributions are entirely separate from your 401k. Taking advantage of a no fee IRA is the easiest way to supplement your retirement savings.
Get The Match
Some employers offer the added benefit of matching a portion of your contributions. At the very least, you should add enough to get the full company match. Missing out on that money is like turning down a raise. Think of it this way. The company really wants to pay you in the future too. In order to get that money you have to save a little of your own today.
The best part is, any company match does not count toward your 401k contribution limit. You’d be crazy not to take advantage of it.
Start Planning Early
The best way to get the most out of your retirement savings is to plan ahead. When you first set up your 401k contributions, you’ll be asked how much. Don’t fill out a specific dollar amount, instead use a percentage like 10% or better yet, 15%. This way, you never have to change anything when you get a raise or bonus.
There is more to a 401k than just savings, though. Make sure to check your plan and investment choices regularly. Don’t forget to consider the costs when choosing each investment too. If there is anything you don’t understand, contact the plan administrator for more information.
See all the IRS changes here.