2013 Retirement Contribution Limits and Tax Changes

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With so much drama regarding the “fiscal cliff,” I thought many of my clients would appreciate some “cliff notes” on the changes they’ll see in 2013.  But first, a quick look at some of the new retirement plan contribution limits for 2013:

401k, 403b employee contributions:  $17,500  (up $500 from last year)
401k, 403b age 50+ catch-up contributions:  $5,500 (no change from 2012)

IRA, Roth IRA contributions:  $5,500 (up $500 from last year)
IRA, Roth IRA age 50+ catch-up:  $1,000 (no change from 2012)
Roth IRA Income phase-out range for joint filers: $178,000 – $188,000

TAX CHANGE HIGHLIGHTS (Here are a few major changes.  If anyone would like the 7-page summary of tax changes, please email & I’ll forward it to you):

1.  Payroll taxes will increase 2% for all wage-earners.

2.  Tax rates will stay the same unless your annual earnings are above $450,000 (joint filers) or $400,000 (single filers) who will now fall into the 39.6% tax bracket.

3.  Capital Gains and Dividends will be taxed based on your tax bracket:
– Tax rate BELOW 25%:  0% tax
– Tax rate of 25% or greater (but earnings less than $450,000 joint):  15% tax
– Earnings of $450,000 joint:  20% tax rate plus 3.8% healthcare surtax rate.

4.  Permanent AMT relief:  The AMT exemption amount for joint filers rises from $45,000 to $78,750, and will now be indexed for inflation.

5.  Personal Exemption Phaseout and Limitations on Itemized Deductions (previously suspended) are reinstated for households making $300,000 ($250,000 for single filers) or more.

6.  Tax-free distributions from IRAs for charitable purposes, which expired at the end of 2011, is now revived for 2012 and continued through 2013. Because 2012 has already passed, a special rule permits distributions taken in 2012 to be transferred to charities for a limited period in 2013. Another special rule permits certain distributions made in 2013 as being deemed made on Dec. 31, 2012.