The IRS has announced changes affecting 401(k) plans that are set to go into effect January 1, 2013. Among the changes are increases to the contribution limit, as well as mandatory fee disclosure that will be sent quarterly and annually.
2013 401(k) Contribution Limit
Among the changes that are set to go into effect in 2013 is an increase in the contribution limit. Prior to 2013, the contribution limit for a 401(k) was $17,000. The contribution limit will increase to $17,500 in 2013. The contribution limit changes annually and is based on inflation and increased in $500 increments every few years.
2013 401(k) Catch-Up Contribution Limit
The catch-up contribution limit applies to employees who are over the age of 50-years-old. Employees who are over the age of 50 have the ability to make an extra contribution to their 401(k). Unfortunately, the catch-up contribution limit has not increased and will remain the same. Those over the age of 50 can contribute an extra $5,500 to their 401(k) in additional to the standard contribution limit of $17,500 that applies for all workers who are making 401(k) contributions. The total contribution for workers over 50-years-old is therefore $23,000.
New 401(k) Fee Disclosures
New in 2013 will be mandatory disclosures relating to 401(k) fees that are being changed. You will now be required to be sent quarterly and annual statements which list the fees being charged to your account compared to a benchmark. Based on the disclosures, 401(k) participants will be able to determine for themselves whether investing in their 401(k) is worthwhile given the fees being charged or if they should focus on other retirement alternatives such as their Individual Retirement Account (IRA). Investors can contribute to both their 401(k) and IRA. However, if 401(k) fees are excessive when compared to an IRA, investors will want to max out their IRA before investing in their 401(k). The 2013 IRA Contribution Limit was increased from $5,000 to $5,500.