Westchester tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions!
The IRS has announced cost-of-living adjustments affecting the dollar limitations for retirement plans, deductions, and other items. Several of the limitations are higher for 2013 because the increase in the cost-of-living index met the statutory threshold. However, some limitations did not meet that threshold and remain unchanged from 2012.
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increased from $17,000 in 2012 to $17,500 in 2013. The catch-up contribution limit for those age 50 and over remains unchanged at $5,500.
The contribution limit for both Roth and traditional IRAs has increased $500 from 2012. You can contribute up to $5,500 ($6,500 if you are age 50 or older by year-end) to your IRA in 2013 if certain conditions are met (i.e., sufficient earned income). For married couples, the combined contribution limits are $11,000 ($5,500 each) and $13,000 ($6,500 each if both are age 50 by year-end) when a joint return is filed, provided one or both spouses had at least that much earned income.
Keep in mind that contributions to traditional IRAs may be tax-deductible, subject to specific limitations that increase for 2013. When you establish and contribute to a Roth IRA, contributions are not deductible, but withdrawals are tax-free when specific requirements are satisfied. In addition, there are no mandatory distribution rules at age 70 1/2 with a Roth IRA, and you can continue to make contributions past age 70 1/2 if you meet the earned income requirement.
The 2013 limitation for SIMPLE retirement accounts increased $500 to $12,000. However, the SIMPLE catch-up contribution for those age 50 by year-end is unchanged from 2012 at $2,500.
The 2013 contribution limit for profit-sharing, SEP, and money purchase pension plans is the lesser of (1) 25% of the employee’s compensation-limited to $255,000, an increase of $5,000 from 2012 or (2) $51,000, an increase of $1,000 from 2012.
The social security wage base, for computing the social security tax (OASDI), increases to $113,700 in 2013, up from $110,100 for 2012. The additional $3,600 for 2013 represents an increase of 3.3% in the wage base.
Finally, the annual exclusion for gifts increased by $1,000 and is $14,000 in 2013.
Please contact Westchester tax preparation firm Herman & Company CPA’s if you have any questions!