RMR Wealth Management Blog

2013 IRS Retirement Contribution Limits posted by Ryan C. Rogers, RMR Wealth Management, LLC

RMR Wealth Management - Monday, October 22, 2012

 

IRS Announces 2013 Pension Plan Limitations; Taxpayers May Contribute Up to $17,500 to Their 401(k) Plans in 2013

IR-2012-77, Oct. 18, 2012

WASHINGTON — The Internal Revenue Service today announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2013. In general, many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment. Highlights include:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $17,000 to $17,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) rises to $5,500, up from $5,000 in prior years.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $59,000 and $69,000, up from $58,000 and $68,000 in 2012. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $95,000 to $115,000, up from $92,000 to $112,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $178,000 and $188,000, up from $173,000 and $183,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $59,000 for married couples filing jointly, up from $57,500 in 2012; $44,250 for heads of household, up from $43,125; and $29,500 for married individuals filing separately and for singles, up from $28,750.

Below are details on both the unchanged and adjusted limitations.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Commissioner annually adjust these limits for cost-of-living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

The limitations that are adjusted by reference to Section 415(d) generally will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $17,000 to $17,500 for 2013. This limitation affects elective deferrals to Section 401(k) plans, Section 403(b) plans and the federal government’s Thrift Savings Plan.

Effective Jan. 1, 2013, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $200,000 to $205,000. For a participant who separated from service before Jan. 1, 2013, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2012, by 1.0170.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2013 from $50,000 to $51,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2013 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $17,000 to $17,500.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii) is increased from $250,000 to $255,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $165,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,015,000 to $1,035,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $200,000 to $205,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $115,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $375,000 to $380,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $11,500 to $12,000.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $17,000 to $17,500.

The compensation amount under Section 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at $100,000. The compensation amount under Section 1.61‑21(f)(5)(iii) remains unchanged at $205,000.

The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2013 are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $34,500 to $35,500; the limitation under Section 25B(b)(1)(B) is increased from $37,500 to $38,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), is increased from $57,500 to $59,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $25,875 to $26,625; the limitation under Section 25B(b)(1)(B) is increased from $28,125 to $28,875; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), is increased from $43,125 to $44,250.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $17,250 to $17,750; the limitation under Section 25B(b)(1)(B) is increased from $18,750 to $19,250; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), is increased from $28,750 to $29,500.

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,000 to $5,500.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $92,000 to $95,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $58,000 to $59,000. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $173,000 to $178,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $173,000 to $178,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $110,000 to $112,000.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,039,000 to $1,066,000.

Page Last Reviewed or Updated: 2012-10-22

 

Gift & Estate Tax Opportunity Set to Expire By Ryan C. Rogers, RMR Wealth Management

RMR Wealth Management - Wednesday, October 10, 2012

Gift & Estate Tax Opportunity Set to Expire By Ryan C. Rogers, RMR Wealth Management

Unknown to many, the temporary two year feature of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Authorization Act of 2010 is about to expire.  This feature increased the federal gift and estate tax applicable exclusion amount in 2011 to $5,000,000.00 per person ($10,000,000.00 per married  couple).  In addition, the tax rate on gifts exceeding that amount was reduced to 35%.  Since this feature was indexed for inflation, the amount per person has increased to $5,120,000.00 ($10,240,000 per married couple) for 2012. 

 

Unless Congress acts, this lifetime gift tax exemption will drop to $1,000,000.00 on January 1, 2013.  Moreover, the tax rate on gifts exceeding that amount will jump from 35% to 55%.  For wealthy individuals, time is running out to make gifts that in all likelihood  will reduce estate taxes in the future.

 

Many estate planning professionals are concerned about the fourth quarter year end rush of clients looking for guidance on this topic.  I encourage anyone interested in this exemption to contact me as soon as possible to discuss your options with my estate planning experts.

 

Ryan Rogers

RMR Wealth Management

Follow Ryan C. Rogers, RMR Wealth Management on Twitter http://twitter.com/#!/RyanCRogers1

 

Five things investors should do before year end by Brian Mayer

RMR Wealth Management - Monday, December 19, 2011

Tax Planning

Every investor needs to evaluate whether he/she has taxable gains or losses at the end of the year for 2011.  If you have realized losses you can deduct $3,000.00 from your 2011 taxes.  If you have more than $3,000.00 in realized losses, you can carry those losses forward to a future year to offset realized gains.  If you have realized gains, you should look to see if you have any unrealized losses to offset those realized gains.  If you sell a security to book a realized loss you can either wait 30 days to buy back the same security or buy a similar security right away to maintain similar exposure in your portfolio.  Any transactions you choose must be completed by year end.

Retirement Planning

Every investor needs to evaluate the amount being saved in his/her various retirement accounts.  If you invest in a 401(k) plan you can defer up to $16,500.00 from your salary.  If you have not reached that amount yet, you still have time to contribute more with your final paycheck of the year.  If you are over the age of 50, you can utilize a catch up contribution which maximizes your contribution at $22,000.00.  This change can make a huge difference especially if you have an employer who matches your contributions.  If you cannot change this year, use this as an opportunity to adjust your contributions for 2012.  Always remember these contributions are tax deductible and all investments grow tax deferred until you begin withdrawals during retirement.

Roth IRA Conversion

Investors may want to consider converting traditional IRA accounts to Roth IRA accounts.  When you convert you pay the taxes now on the amount you convert, but all investments grow tax free and withdrawals at retirement are also tax free.  This is a strategy that works if you believe your tax bracket will be higher in the future.

Asset Allocation

The end of the year is a good time to take a moment and decide whether your portfolio has an asset allocation that aligns with your goals and objectives.  Many times when markets fluctuate, portfolios tend to become over-weighted in a particular sector or asset class.  Use this time to review your allocation and make sure your portfolio is positioned properly for 2012.

Budget

The final item investors can focus on is looking at what the budget appears to be for 2012.  Look for ways to reduce expenses so that this time next year you have more money in your pocket.  Look to see if you can refinance any real estate or other forms of debt.  Have your insurance policies evaluated to make sure you are not overpaying for your coverage.  Finally, look to make charitable contributions with either cash or securities to maximize your deductions as well as helping a cause you wish to support.


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