New IRS Rules Help Retirement Savers Catch Up

When it comes to saving for retirement, many Americans have some catching up to do.

Tom Grill | Blend Images | Getty Images

But whether you're a baby boomer or a member of Generation Y just beginning your career, building your nest egg should get a little bit of a boost thanks to next year's increase in contribution limits for 401(k)s and IRAs.

Since the IRS has raised contribution limits on 401(k)s and IRAs for 2013, taking full advantage of these accounts could get you a lot closer to your retirement goals.

So, follow these steps.

  • Max out your 401(k) plan contributions this year and next.

If you haven't hit the max, in the next two months, increase the percentage of pay that goes to your workplace retirement plan. The maximum contribution to 401(k)s for 2012 is $17,000.

Next, plan to slightly increase your contribution rate next year. The maximum 401(k) contribution will increase $500 to $17,500 in 2013. (Read More: Too many 401(k)s?)

Contribute at least as much as the company's matching contribution.

Always make sure you're contributing at least enough of your pay to your 401(k) plan to qualify to receive the full matching contribution that your company may offer. A 011 study by Fidelity found roughly 40 percent of company match dollars were "left on the table." That's free money, wasted.

  • Make IRA contributions up to the April tax deadline of the following year.

Of course, you should contribute the maximum contribution to IRAs, too: up to $5,000 for 2012 and $5,500 for 2013. That's another $500 boost.

If you're self-employed, you can really stash away a lot of cash. A SEP IRA allows you to contribute up to 25 percent of your compensation into this retirement plan. The maximum contribution to a SEP IRA is $50,000 this year and $51,000 in 2013.

The good news is you don't have to get all of your 2012 IRA money in by the end of the year. You have until April 15, 2013, to make your IRA contribution count for the 2012 tax year. (Read More: Reform or Replace the 401(k)?)

  • Catch-up contributions give those 50 and over an extra boost.

If you're 50 or older, you can really bulk up your retirement savings by taking advantage of the IRS' "catch up" provisions. You can add $5,500 to your 401(k) this year and next, for a maximum contribution of $22,500 in 2012 and $23,000 in 2013. (Read More: 401(k) annuity option?)

The catch-up contribution for regular and Roth IRAs in 2012 and 2013 is $1,000. So for those 50 and older, you could be stashing away $6,000 in an IRA this year and another $6,500 next year. There is no catch-up contribution for a SEP IRA, but if you can stash away $50,000 or more this year and next, you should still be in pretty great shape.

— Sharon Epperson

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