American savers will be glad to see the new pension-plan limitations that were released by the Internal Revenue Service this week. The most notable limit increases will bolster taxpayers’ ability to save for retirement — definitely good news for anyone aiming to establish a sizable nest egg before leaving the workforce.

Indi Samarajiva / Flickr source

In 2013, the contribution limit for 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $17,000 to $17,500. The catch-up contribution limit, for those ages 50 and up, remains at $5,500.

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Also, the contribution limit for traditional and Roth IRAs is increased from $5,000 to $5,500. The catch-up contribution limit is unchanged at $1,000. Taxpayers should note that this limit applies to combined contributions to all IRAs (maximum $5,500 contribution across all IRAs, not every IRA).

Contribution limitations were raised because “the increase in the cost-of-living index met the statutory thresholds that trigger their adjustments,” the IRS said in an official notice.

For employer-sponsored plans, the last limit increase occurred for 2012, when it was raised from $16,500 to $17,000. For IRAs, the last limit increase happened in 2008, when the limit was hiked from $4,000 to $5,000.

Taxpayers who contribute to one of the above employer-sponsored retirement plans and an IRA will be able to save an extra $1,000 in these tax-deferred accounts per year. At a modest 6 percent average annual return, that extra $1,000 will turn into $5,743 after 30 years.  Assuming the contribution limits don’t change again, adding that additional $1,000 per year could translate to an extra $83,802 after 30 years (again, assuming a 6 percent annual return).

In addition to being able to save more, eligibility requirements for IRAs have also eased slightly. The IRS reduces the amount that taxpayers can contribute to traditional and Roth IRAs when their incomes reach a certain range — at a certain income level, taxpayers cannot contribute at all.

For traditional IRAs:

– Singles and heads of household, covered by workplace retirement plan: $59,000 to $69,000

– Married filing jointly, covered by workplace retirement plan: $95,000 to $115,000

– Married, not covered by workplace retirement plan: $178,000 to $188,000

For Roth IRAs:

– Singles and heads of household: $112,000 to $127,000

– Married: $178,000 to $188,000

Whether you are just starting your first job or getting ready to say goodbye to the job market, heed these helpful tips to prepare for retirement.


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Simon Zhen

Simon is a research analyst for MyBankTracker. He is an expert on consumer banking products, bank innovations and financial technology.
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  • Eric Scott

    Are there increases every year or only sporadically?

    • Simon Zhen

      Eric, the IRS will raise the contribution limits as the inflation rate increases to certain levels.