The IRS 2013 401K maximum was officially announced, and just like last year, there’s an increase in the 401K contribution limit once again!
The Maximum 401K Contribution in 2013
The 2013 401K maximum contribution is $17,500! That makes two straight years of increases after three years of no increases from the IRS.
The 2009, 2010, and 2011 maximum 401K contributions had all been stuck at $16,500 prior to the 2012 maximum 401K contribution limit jumping from $16,500 to $17,000.
This maximum applies to your personal contributions to both traditional 401K’s and Roth 401K’s (or a combination of the two, if you have both). It is separate from the maximum employer 401K contribution.
403B and 457B plans will receive the same bump in limits in 2013.
2013 401K Catch-Up Contribution
The maximum 401K catch-up contribution per year for those over 50 years old, however, will stay the same at $5,500 over the standard contribution limit in 2013. No increase there. Same goes for 403B’s and 457?s.
How to Max Out your 401K in 2013
If you would like to max out your 401K in 2013, take $17,500 and divide it by your total salary from your employer. For example, if you make $70,000 per year (includes bonuses), then take $17,500 and divide by $70,000 to calculate the percentage of your pay you would need to contribute to max out your 401K.
In the above example, it would be 0.25, or 25%. Next, work with your HR department or your 401K administrator update your 401K contribution percentage.
401K Maximum Contributions Historically
The maximum contribution level has increased in all but six years going back to it’s beginning in 1987 (over 75% of the time). Three of those six years without an increase were 2009 through 2011.
It’s also worth nothing that the maximum 401K contribution amount has never declined.
Moving Beyond your 401K
Not everyone will be able to contribute the maximum, no doubt. If you can, however, it is one of the best things you can do for your financial future, particular when a possible employer 401K match is at stake.
If you do max and want to contribute more, you can also create a Traditional or Roth IRA (the 2013 IRA maximum contribution increases to $5,500). I moved both of mine to TradeKing, who has zero maintenance or inactivity fees if you maintain a modest balance of $2,500 or make one trade in a year. Trades are only $4.95.
If you have left an employer and have old 401K’s sitting around, you may want to consider a 401K rollover to an IRA or your current 401K. You’ll probably be saving money on fees in an IRA versus your 401K.
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