Retirement accounts: Are you contributing the max?

Ray Martin of CBS News, explains how to contribute the maximum to your retirement or tax-advantaged savings account.

(MoneyWatch) People often ask how much they can contribute to an IRA, 401(k) or other type of retirement or tax-advantaged savings account.

Since we’ve arrived halfway through the year, now is a good time check your year-to-date contributions to see if you are on track to contribute the maximum allowed to your retirement accounts.

If you want to contribute the maximum to your tax-advantaged accounts, you need to know the limits for 2013. Since the annual contribution amount varies by account type and age, here’s some information to help you keep it all straight:

401(k), 403(b) and 457 plans

The annual limit on contributions for 2013 is $17,500. Also, if you are age 50 or older this year, you can also make additional contributions into these and other tax-advantaged savings plans and accounts. If you fall into this category, you can contribute an additional $5,500, for a total annual contribution of $23,000.

Self-employed 401(k) plan

The self-employed can also set up and fund their own 401(k) profit-sharing plan, which allows for the same type of contributions mentioned above. In this type of plan, which is easily set up at any major brokerage firm, you can also make an additional contribution that is a percentage of net profit (the profit-sharing component of the plan). For an individual who declares about $75,000 net profit from self-employment, the total pretax contribution is about $31,000 for 2013. For those 50 or older, the contribution amount is about $36,500. For the self-employed who are age 50 or older and make a profit of $180,000 or more in 2013, the maximum pretax contribution is $56,500.

IRA contribution limits

For those under age 50 who have wage earnings, a maximum contribution of $5,500 to any type of IRA is permitted in 2013. If you are age 50 or older this year, the annual IRA contribution limit is $6,500, which means you can contribute an extra $1,000. These limits apply to traditional IRAs and Roth IRAs.

Simple IRA plans

Among the self-employed, some still use Simple IRA plans. If you are under age 50, the contribution limit is $12,000. If you’re age 50 or older in 2013, you can contribute an additional $2,500, for a total contribution of $14,500. Given the higher contribution limits allowed for self-employed 401(k) plans, I recommend using the self-employed 401(k) plan instead of the Simple IRA.

Health savings accounts

Those enrolled in high-deductible health plans can set aside pretax money for a health savings account, or HSA. Money from these accounts can later be withdrawn tax-free when used for qualified medical expenses. The annual contribution limit to an HSA for a person with medical coverage of only herself is $3,250. For those covered under qualifying family medical plans, the contribution limit is $6,450. But if you are age 55 or older in 2013, if you are single, you can contribute an additional $1,000 annually, for a total of $4,250, to an HSA or the same additional amount to a family HSA, for a total of $7,450.

Tags: , , , , , , , , , , , ,