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Saving for retirement just got a little sweeter. Beginning in 2013, employees will be able to contribute $17,500 a year before taxes to their 401(k)s. That’s up from $17,000 currently. While it might not sound like much, compounding interest over a 20- or 30- year period could result in a sizable sum.
The announcement by the IRS on Thursday marks the second year in a row the government agency has added $500 to the contribution limit.
However, as CNN Money notes, the catch-up contribution limit, which is the additional amount of tax-free money employees over the age of 50 can contribute to their retirement plans, on top of the $17,500 that any employee can contribute, remains unchanged at $5,500.
Along with contributions to retirement plans, which include 401(k)s, 403(b)s, most 457 plans and the federal government's Thrift Savings Plan, the agency said it will increase more than two dozen tax benefits as well, according to the network.
Among them, taxpayers will be able to gift as much as $14,000 tax-free in 2013, up from $13,000.
Also, if you're a U.S. citizen living abroad, the amount of foreign earnings you can exclude from your taxable income will rise from $95,100 to $97,600, CNN notes. Rising inflation also prompted the Social Security Administration to announce earlier this week that Social Security recipients will be given a 1.7% boost to their monthly benefits next year.