2013 Maximum Contribution Increasing For 401(k) and IRA

Savers everywhere, rejoice! The IRS has given us a gift for 2013. The maximum contribution limits for the 401(k) and Roth IRA are increasing! This means we’ll all be able to stash away just a little bit more tax advantaged cash in the upcoming year. Here’s what’s changing:

2013 401(k) Maximum Contribution:

For 2013 the maximum contribution you can make to your 401(k) account will be $17,500. This is up just a touch from the $17,000 limit in 2012, and up a full grand from the $16,500 limit that we were stuck with between 2009-2011.

Remember, your employer’s matching contributions to your 401(k) don’t count against the $17,500 limit. Only the contributions out of your paycheck count against the limit.

It also doesn’t matter if you contribute to a standard 401(k), a Roth 401(k) or both. It’s $17,500 no matter how you want to split it.

To find what percentage you would have to change your contribution to in order to max out your 401(k) for 2013, simply divide $17,500 by whatever your gross (pre-tax) salary is for the year. Example: If you make $50,000 it would be $17,500/$50,000 which comes out to 35%.

Now obviously not everyone can afford to max out their 401(k) plan, but for those that can this is welcome news. For the rest of us, remember to contribute at least as much as needed to get the full matching amount from your employer.

2013 Maximum Roth IRA contribution:

The 401(k) isn’t alone in seeing its contribution limits increased. The maximum contribution for your IRA (both traditional and Roth) is increasing to $5,500. This is the first increase in the IRA contribution limit since 2008 (the 2008-2012 limit was $5000).

It’s much easier for most people to max out their Roth IRA instead of their 401(k) for the simple fact that $5,500 is a much easier number to reach than $17,500. There are a number of ways to manage your Roth IRA contributions. Some people like to contribute the full amount right at the beginning of the year, and then save up their contribution for the next year as the year progresses.

As part of how I’ve automated my saving  I have an automatic transfer set up from my savings account to my Roth IRA each month. If you were to max out your Roth IRA using this method you would have to contribute $458.33 each month.

As we approach the end of the year it’s important to start planning out our finances for 2013. If maxing out your 401(k) or IRA was on the list of goals for the new year, you’re going to have to adjust that goal slightly upward. Not that that’s a bad thing!

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3 Responses to 2013 Maximum Contribution Increasing For 401(k) and IRA

  1. Since I can’t afford to max out my IRA (my company doesn’t offer a 401(k)), I’ve been pegging my contributions at 10% of the limit. So next year, I want to be contributing an extra $50

  2. I can’t wait until the day that these limits actually matter to me. :) We’ll get there eventually but I can’t see us maxing out either Roth or 401k for a few more years.

    It is great that they’ve increased it for the people that are able though!

  3. We’re still nowhere close to maxing out our IRA, but it’s nice that others will be able to save more. One day we’ll get there. :-)

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