Each year, the IRS reviews the contribution limits on tax-advantaged accounts and determines whether those limits need to be raised. Often, the rate of inflation has a lot to do with whether you are eligible to contribute more money to your tax-advantaged accounts.
Because inflation can erode your purchasing power, the money you put into these accounts won’t be worth as much later, without dramatic returns from the investments in the accounts. The IRS tries to help by increasing contribution amounts in a way that can help consumers keep pace with inflation.
There have been some changes to tax-advantaged account contributions for 2013. This means that you will be able to put more money aside, with tax advantages, in the coming year.
IRA Contribution Limit Rises by $500
Perhaps the most exciting increase is for IRA contributions. The last time the contribution limit on IRAs was raised was in 2008. Starting in 2013, the new limit is $5,500, up from the current contribution limit of $5,000. The new limit also applies to Roth versions of the account.
The catch-up contribution, for those 50 and older, remains at $1,000, however. No change there.
401(k) Contribution Limit Rises by $500
If you are contributing to a 401(k), you have the chance to contribute up to $17,500 this year, rather than the current limit of $17,000. This limit also applies to the Roth version of the 401(k). Once again, the catch-up contribution remains at $5,500.
Increasing your contribution can help you boost your nest egg for the future. The more you put in now, the more you can earn later. The longer the money is in your account, the more time compound interest has to work on your behalf.
HSA Contribution Limit Rises
Health Savings Accounts are also getting a boost in contribution limits. If you are using an HSA to capitalize on the tax advantage related to your medical expenses, an increased contribution can be helpful – especially since 2013 will usher in lower contribution limits for Flexible Savings Accounts, thanks to the recent health care law. The $1,000 catch up contribution hasn’t changed, but other aspects of HSA contributions have:
- Individual: The new contribution limit is $3,250, up to $150 from the current limit. The required deductible on a health plan, in order to qualify for an HSA, is now $1,250 – an increase of $50.
- Family: A family can contribute up to $6,450, which is an increase of $200. The new deductible requirement is also higher, at $2,500.
With the Health Savings Account, it’s important to note that inflation increases the amount that you pay out of pocket, as well as the amount that you can set aside in the account.
Gift Tax Exclusion
It’s not an account contribution, but the gift tax exclusion does make a difference for some taxpayers. You can give $14,000 per person, to individuals, up from $13,000 currently. Since gift tax is paid by the giver, this can provide taxpayers a chance to reduce their estates now, by more, without paying taxes.
It’s also worth noting that foreign earnings can be excluded up to $97,600 starting in 2013, as opposed to the current level of $95,100.