401k Contribution Limit Raised by the IRS

By October 19, 2012 Businesses, Individuals

The IRS has announced that the contribution limit for 2013 for a 401k plan is going up to $17,500.  This will be a $500 increase from the current level of $17,000.  The catch up contribution limit for individuals over 50 years old remains unchanged at $5,500.  The result is that an individual over 50 can now contribute up to $23,000 to their 401k in 2013.

That’s not the only thing going up in 2013.  Taxpayers will now be able to gift up to $14,000 tax free, up from $13,000 in 2012.  This can help with estate planning.  In fact, the limit is per parent, meaning that both parents can gift up to $14,000, or $13,000 in 2012.

The exclusion for foreign income for US citizens living abroad is increasing from $95,100 to $97,600.  This is for US citizens who spend 330 or more days in a foreign country during the year, although there are some caveats and details to discuss with your accountant if you think you may be eligible.

Of course, the other major increase on the books for the IRS next year is an across the board tax rate increase and loss of certain credits that will come with the expiration of the Bush tax cuts. No one expects that to happen without modification.  Expect many more tax changes coming down the line for 2013 in the next couple months.