IRA and 401k Limits for 2013
Whether you have a personal IRA or a company sponsored 401K one crucial thing to know is how much you can add or contribute to that account each year before you get penalized, in other words your IRA and 401k limits for 2013. The IRS has strict rules regarding your maximum contribution and will impose hefty fines upon those individuals who contribute more than they are legally allowed. We have provided 3 easy to understand steps to help you understand how much you can contribute to either your IRA or 401K each year.
1st: You need to know which type of account you have.
The contribution limits differ depending on whether you have an IRA or a 401K. IRA literally stands for Individual Retirement Account. An IRA can be sought out privately and some employers provide IRA benefits. There are also different types of IRAs such as: traditional IRAs, Roth IRAs, and SEP IRAs. A 401K is typically part of an employee benefit program where an employer contributes a certain percentage of an employee’s income each year. You should be able to determine which type of account you have by looking at your monthly/quarterly statements. If you are still unsure then you should contact account servicer and ask for details.
2nd: You should know the difference between contribution limits for either an IRA or 401K.
IRA limits for 2013:
As of 2013, the new contribution limits for IRAs (both Roth and Traditional) is $5,500 per year collectively. You may have more than one IRA. If so then you can add money to either account but your total contributions cannot be more than $5,500 per year. If you are over the age of 50, then you can contribute and additional $1,000 per year, or $6,500 total (this is commonly referred to as a “Catch-Up Period.”) The same contribution limits will be true for 2014.
401k Limits for 2013
Since 401K plans operate differently than IRAs the contribution limits are different too. As of 2013, you can contribute up to $17,500 per year as an elective salary deferral to your account. In other words, the amount you choose to set aside each paycheck to go into your 401K cannot exceed $17,500 collectively during the year. This amount does not include employer contributions. The total of your elected savings into your 401K plus the amount your employer contributes cannot exceed $51,000 for 2013 and $52,000 for 2014. Finally, if you are over the age of 50, you are allowed an additional contribution of $5,500 each year.
3rd: Set goals for yourself and keep track of those goals.
It is important to have a firm understanding of where you are now and where you want to be in 5, 10, or even 20 years from now. Understanding your contribution limits is an excellent way to avoid unnecessary fees, but it is also a way to set goals for yourself. Think about the power of compounding interest and how much more effective that it would be if you were adding as much money as you could afford to the equation every year. USelfDirect.com is packed with tools and resources, like IRA calculators, to help you make the most out of your retirement account. Feel free to explore the site or give one of our representatives a call today.
Sources:
http://taxes.about.com/b/2012/10/23/ira-contribution-limits-for-2013.htm
http://taxes.about.com/od/retirementtaxes/qt/401k-contribution-limits.htm
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