IRS raises 401k to $17,500 for 2013

[rennigade]

It looks like anyone with a 401k will be able to contribute $17,500 for 2013, up $500 from the previous year.

Is anyone else as excited as I am? I love seeing that account grow.

[disneysteve]

Also, the IRA limit will increase to $5,500. I'm glad about that one since I don't have a 401k and my wife isn't anywhere near maxing hers so that increase doesn't help us but this one does. I do wish they would make the IRA limit match the 401k limit however. About half of all workers don't have access to a 401k but everyone can access an IRA. Putting away $5,000 or even $5,500/year doesn't cut it for many of us though.

[kork13]

I'm with DS... More excited about the IRA limit increase than for 401k's. I don't contribute even half of the 401k limit, but I've maxed my Roth IRA for years. I've already adjusted my upcoming auto-investments to account for the increase. Technically, since I just got access to a Roth 401k, I suppose I could just combine all of my retirement contributions into my 401k-equivalent (TSP), but I like the added flexibility I have with the IRA.

[bjl584]

My monthly contributions will be automatically bumped up to match the new IRA limits starting in January.

[disneysteve]

The median income in the US is about $50,000.
The typical advice is to save 15% for retirement. So that would be $7,500 for that median worker.

In order to put $17,500 into a 401k and have it represent 15% of income, you'd have to be earning $116,666 which is more than double the median. While the increased limit is nice, it really only benefits high income individuals.

How about increasing the Roth contribution limit to be 15% of whatever the median income is? Give those with more typical incomes equal opportunity to save for retirement. I'd love to see the limit hiked to $7,500.

Of course, the whole problem stems from the fact that they established the IRA limit way back when but didn't index it for inflation. It was $2,000 for 20 years before they finally started inching it up.

[phantom]

I don't come close to maxing my 401k right now. So, I'm more excited about the IRA limit going up than the 401k limit. As it is right now, I'm still playing catch up for previous years when I didn't care much about saving for retirement with my IRA. So, I can put in $500 month as long as the first few months go towards the previous year. But, I'll be all caught up pretty soon, and I'll have to start worrying about the limit. Personally, I'm rooting for it to hit $6000 because $500 a month is a nice number. But, I wouldn't complain if it climbed higher.

[rennigade]

The median income in the US is about $50,000.
The typical advice is to save 15% for retirement. So that would be $7,500 for that median worker.

In order to put $17,500 into a 401k and have it represent 15% of income, you'd have to be earning $116,666 which is more than double the median. While the increased limit is nice, it really only benefits high income individuals.

How about increasing the Roth contribution limit to be 15% of whatever the median income is? Give those with more typical incomes equal opportunity to save for retirement. I'd love to see the limit hiked to $7,500.

Of course, the whole problem stems from the fact that they established the IRA limit way back when but didn't index it for inflation. It was $2,000 for 20 years before they finally started inching it up.

I wasnt aware of ira's being bumped up to $5500, thats also good news. My wife is in the same boat...her employer does not offer a 401k. Would be nice if she could put much more in the ira account.

I wouldnt say the 401k increase only benefits the high income earners. I'm far from having a high income but I still max out both 401 and roth.

Granted I have no children or house payments so that may change in the future...gulp!

[disneysteve]

I wouldnt say the 401k increase only benefits the high income earners. I'm far from having a high income but I still max out both 401 and roth.

That's great that you can max out both but that's $21,500 currently. So for the median worker earning 50K, that would be 43% of income. Even for someone making 75K, that would represent almost 29% of income. Certainly there are some people able to do that but they are pretty rare. I think my wife and I are pretty good savers and we aren't putting away 29% of income.

So I do think the increase mainly benefits the higher earners, folks making at least 100K and above.

[moneybags]

So I do think the increase mainly benefits the higher earners, folks making at least 100K and above.

I would guess that the higher earners are more likely to increase their savings. It would be interesting to know how many people invest in a Roth vs. 401k if they have the option for both. It seems easier to just sign up for the 401k, if you have the option.

[PMMM]

I am blessed to be able to adjust my 401K to match the limit again this year. I'm short on retirement income so I hope I can continue to do so. Things can change in a heart beat so you never know.

[disneysteve]

It would be interesting to know how many people invest in a Roth vs. 401k if they have the option for both.

I think it depends on the terms of the 401k. We often advise people here to invest in their 401k just to the extent that they get the full company match and then fund their Roth. If there is no company match, do the Roth first.

[bUU]

I think some of that is just Roth band-wagon-eering. There is a lot of strong advice out there that says defer taxes when you can. I have the option to contribute my 401(k) contributions pre-tax or into a Roth 401(k) and the difference between the two in terms of relative benefits is pretty small, debatable, and the arguments for Roth are highly dependent on being in the same or a higher tax bracket once you retire, and that's not a forgone conclusion.

[Diavel_guy]

I contribute the full amount allowed to both my IRA and 401k, plus add cash to my savings every month. I will do so again when the limits increase next year, which I am happy is possible like everyone else. Like a previous person mentioned, I feel blessed I can do so because you never know what the future holds. But for now while I can do it, I am!