If your company sponsors a 401(k) plan, you will be happy to know that the IRS increased the 401(k) contribution limits for 2013. This is an increase of $500 from 2012. For 2013, catch-up contributions for those age 50 and over remain unchanged at $5,500, and the max deferred compensation increased to $51,000. Let’s take a look at all of these numbers in more detail and discuss what they mean for investors.
401k Contribution Limits
How to read this chart: The following chart lists the 2013 401k plan contribution limits, along with the contribution limits from previous years. The number under the heading “Employee Contributions” applies to persons under age 50. “Catch-up Contributions” apply to people age 50 and over. Finally, the column “Total Contribution Limit” is the maximum you can apply to your 401k plan in any given year. This includes all possible contributions, including employee contributions, catch-up contributions, employer contributions, profit sharing, or any other allowable contributions.
||Total Contribution Limit
Limits apply to 401k, 403b, 457, 401a Plans, and Thrift Savings Plan
These contribution limits apply to more than just the 401(k) plan – they actually apply to several different retirement plans that are written into the tax code. These limits also apply to Individual 401k Plans. It is worth looking into your specific plan as there may be slight differences you should be aware of, particularly when it comes to employer contribution rules, profit sharing, or other plan specific topics. TheMilitaryWallet.com covers Thrift Savings Plan contribution limits to discuss some of these examples as they apply to the Thrift Savings Plan, which is similar to a 401(k) plan, but is only available to military members and certain government employees.
These contribution limits also apply to the Roth and Traditional versions of the 401(k) plan and similar employer sponsored retirement plans.
Maximize your 401(k) contributions if you are able
If you are able to maximize your 401(k) contributions, you should be well on your way to setting yourself up for a solid retirement fund. To determine how much to contribute to maximize your 401(k) account this year, divide the maximum you can contribute (either $17,500 or $23,000) by your total salary. The percentage you see is how much you should contribute every paycheck.
If you cannot afford to contribute up to the maximum, then try to at least contribute up to your employer match if your employer makes matching contributions. You should be able to change your contribution limits through your Human Resources Department.
IRA or 401(k)? Another consideration when contributing to your 401(k) plan is whether or not you should contribute to it at the expense of contributing to a Roth or Traditional IRA. I covered this topic in a previous article – where should you invest first – IRA or 401(k)?
In general it is best to contribute enough to maximize any employer contributions you may be eligible for, then try to max out a Roth IRA if you are eligible to contribute.
If you can afford to maximize both investments, then go for it! Here is more information regarding the IRA contribution limits. Whichever you choose, you are doing the right thing by saving and investing for your retirement.