Changes to 401(k) and IRA in 2013

The new year will bring changes to 401(k) and IRA accounts.  These changes will allow you to save more.  Here’s a list of what’s changing:

  • Increased 401(k) contribution limit – The maximum you can save annually will increase from $17,000 to $17,500.  These figures apply to 403(b) accounts, too.
  • 401(k) fee notifications – Quarterly statements will include more information regarding fees you are paying in your 401(k) plan.
  • Increased IRA contribution limit – Workers who meet the income requirement will be able to contribute up to $5,500 annually, up from $5,000.
  • Increased Roth IRA income limits – Single people can contribute to a Roth IRA until they reach $112,000 in income, at which point contribution limits are decreased until income reaches $127,000.  Couples can contribute to a Roth IRA until they reach $178,000 in income, at which point contribution limits are decreased until income reaches $188,000.

The 401(k), 403(b), Traditional IRA, and Roth IRA are great methods for growing your retirement nest egg.  The tax advantages these retirement plans provide allow your money to grow more than in a taxable account.  The 401(k) and 403(b) plans are provided by employers, but anyone with an earned income can open a Traditional IRA or Roth IRA.

Happy Veterans Day

Happy Veterans Day to all of our vets!  Thank you for your sacrifices that ensure our freedoms and rights in this country.

Student Loan Debt Affecting Parents and Grandparents

A recent Wall Street Journal article indicates that an increasing number of parents and grandparents are being affected by student loan debt:  http://blogs.wsj.com/bankruptcy/2012/10/29/soured-student-loans-bankrupt-parents-grandparents.  From the article:

As young graduates and former students struggle to find work, their student-loan obligations are increasingly falling to the family members who agreed to back the debt in the event of default.  Bankruptcy lawyers report that a growing number of student-loan co-signers, especially grandparents, are trying to get rid of the loan obligations using bankruptcy, hopeful that they’ll find a sympathetic judge or a lender who’s voluntarily willing to lower payments.

Unfortunately, borrowers usually don’t receive favorable rulings in bankruptcy court, so parents and grandparents who co-sign for their children’s’ and grandchildren’s student loans are often left footing the bill.  This puts retired parents and grandparents in difficult predicaments due to being on fixed incomes.

My advice to parents and grandparents considering co-signing on student loans:  Don’t do it, especially not if it’s for an undergraduate degree.  If your prospective college student wants to attend a private undergraduate university but cannot afford it without sizable student loans, take a look at the many great public universities.  Remember that while higher education can be financed via loans, you can’t take out a loan for retirement.