401(k) Contribution Limits Increased for 2013

Contributed by Rebecca Dobbs

This October, the IRS announced cost of living adjustments increasing 401(k) contribution limits.  The new limits for 2013 are as follows:                             

  2013 2012
Maximum Elective Deferral By Employee                              $17,500 $17,000
Catch-Up Contributions (age 50 and over) $5,500 $5,500
Defined Contribution Maximum Deferral (employer/employee combined) $51,000 $50,000
Employee Annual Compensation Limit for Calculating Contributions $255,000        $250,000

As many employees base their deferral percentages on the maximum elective deferral allotted by the IRS, employers should advise employees of their ability to raise this percentage come 2013. 

For those employers with SIMPLE plans (savings incentive match plan for employees of small employers), permitted employee deferrals increase in 2013 from $11,500 to $12,000.

If participation in your plan is lacking, the raised limits on contribution deferrals also provides a reason for service provider(s) to come in and conduct educational meetings designed to help employees understand the value of a 401(k) plan.  Even if your company is not in a position to provide a match, the value of earning compounded interest on employee contributions cannot be emphasized to participants enough.