IRS Announces Benefit Plan Limitations for 2013

On October 18, the Internal Revenue Service announced cost-of-living adjustments for limitations on benefit plans for calendar year 2013. Many benefit plan limitations will change because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment; however, others will remain unchanged.

Highlights of the changes include:

Health Plans:
• High deductible Health Plan (HDHP) is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,250 for self-only coverage or $12,500 for family coverage.

• The annual contribution limitations for individual deductions for self only coverage under a Health Savings Account have increased to $3,250 under § 223(b)(2)(A), and the limit for an individual with family coverage under §223(b)(2)(B) for a HDHP is $6,450.

Retirement Plans:
• The elective deferral (contribution) limit for employees participating in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased from $17,000 to $17,500.

• The catch-up contribution limit for employees aged 50 and over participating in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.

• The deduction for taxpayers contributing to traditional IRAs is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $59,000 and $69,000, up from $58,000 and $68,000 in 2012.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $95,000 to $115,000, up from $92,000 to $112,000.  For IRA contributors not covered by a workplace retirement plan and married to someone who is covered, the deduction is phased out if the couple’s income is between $178,000 and $188,000, up from $173,000 and $183,000.

• The AGI phase-out range for taxpayers contributing to Roth IRAs is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012.  For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000.  For married individuals filing separate returns who are covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

• The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $59,000 for married couples filing jointly, up from $57,500 in 2012; $44,250 for heads of household, up from $43,125; and $29,500 for married individuals filing separately and for singles, up from $28,750.

More information is available here, and an updated table of plan limitations will be made available here on the IRS website shortly.