Update Your Retirement Accounts in 2013

Consider making these adjustments to your retirement portfolio this year.


I’m sure many of us made a New Year’s resolution to save more, and the IRS is giving us a hand this year. The IRS increased the contribution limit for 401(k)s and IRAs by $500. The income limits for IRAs also increased, so more workers can contribute to these accounts. This is great news for workers who maxed out their contributions in 2012 because they can save even more toward their retirement this year.

401(k). Contribution limits for 401(k)s, 403(b)s, and the federal Thrift Savings Plan all increased to $17,500 in 2013. For most young workers, this will seem like an insurmountable amount to set aside for retirement. However, if you keep increasing the amount you save a little bit every year, eventually you’ll be able to contribute the maximum. Workers who already maxed out their contribution at $17,000 in 2012 should be able to increase their contribution to $17,500 this year with minimal hassle. One last thing to do is to figure out if a Roth 401(k) makes sense for you. A Roth 401(k) plan is more widely available now, and it might be beneficial to take advantage of the program if you are in a lower tax bracket. For those who are 50 and older, the catch-up contribution limit is an additional $5,500, the same as in 2012.

IRA. The IRA contribution limit increased from $5,000 in 2012 to $5,500 in 2013. This nice 10 percent increase should help all of us save more for retirement. A Roth IRA is particularly attractive for employees who already participate in their company’s 401(k) plan. The investment gains in a Roth IRA will be tax free once the qualifications are met. This gives retirees more options to minimize taxes when it’s time to withdraw the money. The catch-up contribution limit is an additional $1,000 for those who are 50 and older. The IRA income limits also increased in 2013, so you might qualify even if you didn’t last year.

Taxable accounts. The higher contribution limits will enable many workers to invest up to $23,000 per year for their retirement. This is a lot of money to sock away, but retirement can last over 30 years because we are all living longer. Most of us should contribute the maximum to our retirement accounts, and invest in some taxable accounts as well. As workers approach retirement, they need to generate income streams from various sources to eventually replace their paychecks. Dividend stocks can be great investments because they have the growth potential of stocks as well as the yield to help pay monthly bills. Another investment to consider is peer-to-peer lending. It is a diversification from the stock market, and the interest income can be quite lucrative. Rental properties are also a good way to generate income, but they can be a lot of work.

It’s great that the IRS raised the contribution limit for 2013. We can all contribute more to our retirement accounts and become more prepared for retirement. If you maxed out your retirement contributions in 2012, then don’t forget to increase them for 2013. If you haven’t reached the limit, then consider increasing your contributions when you get a raise. Retirement saving may not be fun, but we can’t ignore it because we are getting older every year.

Joe Udo is planning an exit strategy from his corporate job by reducing expenses and increasing passive income. He blogs about his journey to early retirement at Retire by 40.