The IRS has perfectly timed the announcement of the 2013 pension limitations during National Save 4 Retirement Week, which ends this Saturday.
Notice IR-2012-77 declares the cost-of-living (COLA) adjustments that will impact the dollar limitations for pension plans and other retirement accounts for tax year 2013 for both employer and employee contributions.
It is important to let your employees know how these increases can help them save more for retirement, so make sure to share this information with your workforce in the messaging format that best fits your workplace culture.
Here is a summary of the 2013 limitations that your employees need to know:
- Employees may now contribute up to $17,500 to a 401(k), 403b, or 457 plan. This is an increase of $500 for 2013. For employees age 50 or older, the catch up remains unchanged at $5,500 so they may contribute up to $23,000 for 2013.
- IRA contributions to both a Traditional and Roth IRA has increased to $5,500. However, the additional $1,000 catch up for those age 50 and older has not changed for 2013. The adjusted gross income (AGI) limitations for both types of IRAs also slightly increased.
- The AGI limitation has also increased for your employees who are eligible for the saver’s credit. For single taxpayers, they may be eligible for the credit with AGI up to $29,500, for head of household up to $44,250, and for married taxpayers the limitation has increased to $59,000. The saver’s credit is probably the most often overlooked tax credit, and many eligible employees may miss the opportunity to get up to a 50 cent on the dollar match from Uncle Sam on up to the first $2,000 of a contribution to either their IRA or employer sponsored plan.
- The income threshold to be considered a highly compensated employee for 2013 remains unchanged at $115,000 and also stays the same for a key employee in a top heavy plan at $165,000.
What method of communication is most effective for your employees? If you are currently in your open enrollment period, it makes sense to include these increased limits as part of any benefits workshop or written communication, even if employees are not required to make any annual decisions regarding their retirement plan or are more focused on next year’s health coverage.
Add the info as a “question of the day” posted on your intranet, or include questions about next year’s retirement limits as part of crossword puzzle in your monthly newsletter.
This was originally published on the Financial Finesse blog for Workplace Financial Planning and Education.