It goes without saying, but let's say it anyway -- saving money for retirement is really, really important. And 2013 brings you new opportunities to build that nest egg.
Retirement plans: The IRS raised the annual contribution limit for 401(k), 403(b) and 457 accounts, as well as the federal Thrift Savings Plan. You can now sock away up to $17,500, a $500 increase from last year. Limits on that amount kick in if the IRS considers you a "highly compensated employee", which means you make $115,000 or more.
In addition, some savers stand to benefit from an obscure provision tucked away in the fiscal cliff deal. It allows anyone to convert a traditional 401(k) to a Roth 401(k), provided their plan administrator offers that option. Previously, the conversion was allowed only for people who were eligible to take distributions from the account -- generally, that means you had to be older than 59 and a half. Opening it up to more people will bring the government more revenue.
Roth retirement plans work the same as Roth IRAs, in that contributions are taxed up front and you spend money tax-free in retirement. (Traditional retirement plans and IRAs are the opposite -- money goes in tax-free and you take the hit on the back end.) So, the Roth acts as a hedge against higher future tax rates. And, it gives the Roth option to those whose income is too high to contribute to a Roth IRA.
But there are other factors to consider, if you have the option (less than half of large employers offer a Roth 401(k), and those that do don't have to offer the conversion.) You'll face a tax bill on whatever money you convert. If you expect to be in a lower tax bracket when you retire, it may make more sense to pay the tax bill on your retirement savings then. And, unlike its IRA cousin, the Roth 401(k) is subject to minimum yearly distributions once the account holder reaches age 70 and a half.
IRAs: Contribution limits have been raised here, too. You can now put $5,500 into your traditional or Roth IRA, up $500 from last year. The catch-up contribution limit for people 50 and older also was raised, to $6,500. And more people will be eligible to contribute to Roths in 2013 -- the income limits are now $127,000 for individuals and $188,000 for married couples. (Caps on contribution amounts kick in at $112,000 for singles and $178,000 for couples filing jointly.) Income limits don't apply to traditional IRAs.
SEPs: The simplified employee pension, or SEP, is a type of IRA aimed at entrepreneurs and people who are otherwise self-employed. Saving for retirement can be a challenge for this expanding segment of the workforce. But if you can take full advantage of a SEP, it can really accelerate your path to retirement. Contribution limits are much higher than for traditional retirement plans and IRAs. In 2013, SEP-eligible workers can sock away up to 25% of their income, or $51,000, whichever is smaller.
These all are great options for those who have them. But if you're behind on retirement savings and don't have a plan at work, at least open a savings account. You may not earn much interest, but at least you'll be putting money away. A retirement savings calculator can give you an idea of how much you'll need to save going forward to reach your goals.