The Fiscal Cliff aside, what can savers, borrowers and investors expect in 2013?
Dividend and Capital Gains taxes. As it stands now, the rate on long-term capital gains is scheduled to increase from 15% to 20% and the Federal Tax Rate on dividends is scheduled to increase from 15.0% to 43.4%
Higher taxes relating to the Affordable Care Act of 2010. The tax provisions that will go into effect in the next several years include a Net Investment Income Tax of 3.8%, an additional Medicare Tax of 0.9%, a Medical Device Excise Tax of 2.3%, and an Indoor Tanning Service Tax of 10.0%
Community banks will continue to face higher costs of capital and deposits. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 includes nearly 400 new Federal Rules that increase the complexity of credit requirements which, according to the Financial Services Committee, are “likely to be a source of major new compliance burdens for community banks and credit unions” as larger banks have been able to adapt more quickly to the new laws and are able to support extensive compliance divisions.
Larger 401(k) contribution limit. The contribution limit for 401(k) plans, 403(b) plans, and the federal government’s Thrift Savings Plan will increase from $17,000 in 2012 to $17,500 in 2013. The catch-up contribution limit for employees age 50 and older will remain unchanged at $5,500.
Higher IRA contribution limit. The IRA contribution limit for workers who meet the income requirements will increase from $5,000 in 2012 to $5,500 in 2013. The catch-up contribution limit for older workers remains at $1,000.
New 401(k) fee information. Next year is the first full year that 401(k) participants will receive quarterly and annual 401(k) statements listing the fees charged to their accounts and showing returns compared to a benchmark.
Increased IRA income limits. The tax deduction for people who have a retirement plan at work and make traditional IRA contributions is phased out for singles and heads of household who have a modified adjusted gross income between $59,000 and $69,000 in 2013, up from $58,000 and $68,000 in 2012. For couples in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is between $95,000 and $115,000 in 2013, up $3,000 from 2012. For IRA contributors who don’t have access to a workplace retirement plan, but are married to someone who is covered, the deduction is phased out if the couple’s income is between $178,000 and $188,000, $5,000 more than in 2012.
Roth IRA limits grow. Single people and heads of household can contribute to a Roth IRA until they earn between $112,000 to $127,000 in 2013, $2,000 more than in 2012. For couples, the modified adjusted gross income phase-out range for making contributions to a Roth IRA is $178,000 to $188,000, up from $173,000 to $183,000 in 2012. However, people who earn above these limits may still be able to contribute to a Roth IRA by converting some of their traditional IRA assets to a Roth. “For many clients who are not eligible to fund Roth IRAs due to income limitations, the increased limits provide an opportunity to add to their tax-free investment buckets through Roth IRA conversions,” says Davis.
Higher saver’s credit income limits. Couples can earn up to $1,500 more next year and still claim the saver’s credit, a tax credit for retirement savers worth up to $1,000 for individuals and $2,000 for couples. The modified adjusted gross income limit for couples is $59,000 in 2013, up from $57,500 in 2012. For singles, the limit will jump from $28,750 in 2012 to $29,500 in 2013. And heads of household can claim the credit until they earn $44,250, $1,125 more than in 2012.