The IRS has announced the 2013 cost-of-living adjustments (COLAs) for retirement plans. Many of the limits pertaining to pension and other retirement plans are changed for 2013. Significant changes are as follows:
Elective Deferrals: The dollar limit for Section 401(k) plans, Section 403(b) plans and most 457 plans increase to $17,500 (up from $17,000), or $23,000 if over 50 and the plan adopts catch-up provisioning.
Defined Benefit Plan: The limitation on the annual benefit under a defined benefit plan is increased to $205,000 (up from $200,000). Plan provisions must preclude the possibility that any annual benefit that exceeds the limitations will be payable at any time. Further, the plan provisions (including the provisions of any annuity) generally must preclude the possibility that any annual benefit exceeding these limitations will be accrued, distributed, or otherwise payable in any optional form of benefit (including the normal form of benefit) at any time from the plan.
Annual Compensation Limit: The maximum amount of annual compensation that can be taken into account for various qualified plan purposes is increased to $255,000 (up from $250,000). For example, if an employer provides an annual contribution equal to 5% of salary under a qualified plan, an employee with a salary of $260,000 will have $12,750 contributed to his account ($255,000 * 5%).
Defined Contribution Plan: The limit on the annual additions to a participant's defined contribution account is increased to $51,000 (up from $50,000). The amount that can be allocated during a limitation year (typically the calendar year unless the plan provides otherwise) as an "annual addition" to a participant's account in a defined contribution plan is limited to the lesser of $51,000 or 100% of compensation.
IRA Contribution Limit: Increases to $5,500 (up from $5,000), or $6,500 if over 50 and the plan adopts catch-up provisioning. The due date for making a 2012 contribution is April 15, 2013. In order to make a contribution, the individual must have earned income and be under age 70 ½ at the end of the year.
SIMPLE Accounts: The maximum amount of compensation an employee may elect to defer for a SIMPLE plan is increased to $12,000 (up from $11,500), or $14,500 if over 50 and plan adopts catch-up provisions. An employer can either match employee elective deferrals dollar for dollar up to 3% of wages, or contribute 2% of wages (up to $255,000).
Standard Mileage Rates for 2013
The IRS has issued 2013 optional standard mileage rates used to calculate the deductible costs of operating automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 56.5 cents per mile for business miles driven
- 24 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations