The Internal Revenue Service (IRS) has announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2013.
Federal tax law provides for dollar limitations on benefits and contributions under qualified retirement plans, and requires that the limits be adjusted annually for cost-of-living increases. In general, many of the retirement plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.
- The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), and most 457 plans is increased from $17,000 to $17,500.
- The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
- The limit on annual contributions to an individual retirement arrangement (IRA) rises to $5,500, up from $5,000 in prior years.
- The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $59,000 and $69,000, up from $58,000 and $68,000 in 2012. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $95,000 to $115,000, up from $92,000 to $112,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $178,000 and $188,000, up from $173,000 and $183,000.