Modest 401(k) and IRA Changes Coming in 2014

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By Emily Brandon

The amount workers can contribute to 401(k)s and individual retirement accounts will stay the same in 2014. Inflation, as measured by the consumer price index, didn't increase enough to justify raising the contribution caps.

"Some pension limitations such as those governing 401(k) plans and IRAs will remain unchanged because the increase in the consumer price index didn't meet the statutory thresholds for their adjustment," according to a statement from the Internal Revenue Service.

But some of the income thresholds that allow savers to qualify for tax deductions and credits will increase next year. Here's a look at how 401(k) and IRA rules will change in 2014:

Limits for 401(k) contributions unchanged. Taxpayers may contribute up to $17,500 to their 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan in 2014, which is the same amount as in 2013. The catch-up contribution limit for employees age 50 and older is also unchanged at $5,500. In 2012, 11 percent of 401(k) participants contributed the maximum possible amount, according to a Vanguard study of 2,000 401(k) plans with 3 million participants. Some 401(k) plans also have lower plan-specific caps on contributions.

IRA contribution limits unaffected. The limit on IRA contributions will continue to be $5,500 in 2014. Individuals age 50 and older can contribute an additional $1,000, the same catch-up contribution as in 2013. Just under half (47 percent) of IRA savers contributed the maximum amount in 2011, according to an Employee Benefit Research Institute analysis of 20.5 million accounts.

Larger IRA income limits. The tax deduction for traditional IRA contributions is phased out for savers with a workplace retirement plan who have modified adjusted gross incomes between $60,000 and $70,000, up from $59,000 and $69,000 in 2013. The income phase-out range for married couples with retirement accounts at work will also climb by $1,000 to between $96,000 and $116,000. %VIRTUAL-article-sponsoredlinks%For investors who don't have a workplace retirement plan but are married to someone who does, the tax deduction is phased out if the couple's income is between $181,000 and $191,000, which is $3,000 more than in 2013.

Higher Roth IRA income cutoffs. Workers can earn $2,000 more ($3,000 for couples) in 2014 and still be eligible to contribute to a Roth IRA. The AGI phase-out range for Roth IRAs is $114,000 to $129,000 for singles and heads of household and $181,000 to $191,000 for married couples. However, investors who earn more than these income limits may still be able to convert traditional IRA assets to a Roth. "Even if you are phased out by income from making a Roth contribution, you can contribute to a traditional IRA that is nondeductible and then convert that to a Roth," says Lara Lamb, a certified financial planner and founder of Lamb Financial Planning in Encino, Calif. "However, you need to be aware that the conversion might be taxed."

Bigger saver's credit threshold. Low- and moderate-income workers who save for retirement in 401(k)s and IRAs are eligible to claim a tax credit that can be worth as much as $1,000 for individuals and $2,000 for married couples. Couples can claim the saver's credit until their AGI exceeds $60,000, which is $1,000 more than in 2013. The income limits are $45,000 for heads of household and $30,000 for individuals, up from $44,250 and $29,500, respectively, last year. Saver's credits were claimed on 6.1 million tax returns in 2010, but most people received small benefits. The average saver's credits were $122 for individuals, $165 for heads of household and $204 for couples.

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Modest 401(k) and IRA Changes Coming in 2014

While the only sure things in life are death and taxes, it's worrying about the quality of life that can really be a buzzkill.

Roughly 70 percent of Americans over 65 will need some form long-term care at some point in their lives, according to a study by the U.S. Department of Health and Human Services.

Once you hit 65, you have a 35 percent chance of entering a nursing home. The odds that you'll have to stay there for five years? About 20 percent.

With statistics like these, it's no wonder that the idea of purchasing long-term care insurance keeps popping up. Unfortunately, if you don't purchase coverage when you're in your 50s, it may be too expensive to buy once you're in your late 60s or early 70s. And if you suffer from certain illnesses, the truth is that long-term care insurance coverage may not be available to you.

The first hurdle is getting past the hype so that you can evaluate whether you need coverage -- not everyone does. Here are seven commonly held myths about long-term care.

The fact is, the vast majority of Americans will need some sort of long-term care services as they age, particularly help with Activities of Daily Living (ADLs), including getting in and out of bed, walking, bathing, dressing, and eating.

Even if you're healthy, the aging process unfortunately includes a natural decline in eyesight, hearing, balance and mobility.

It's easy to confuse "long-term care planning" with long-term care insurance, but they're not the same. In fact, making that mistake could literally send you into bankruptcy in your senior years.

Long-term care planning means developing a personal strategy and making decisions now about how you want a range of things to be handled when you or a loved one needs long-term care services down the line.

Insurance is just one of many options people consider for covering the costs of long-term care. If you buy an insurance policy but don't plan appropriately, your care could be compromised. If you develop a plan but never buy the appropriate insurance coverage or execute an advanced care directive, living will, and powers of attorney for health care and financial matters, you could wind up leaving all of your care decisions to others without the means to pay for them.

I lost my father when he was just 49 years old. But his mother lived to be 98 and was fairly vibrant and lived alone until the last year of her life.

There's no telling when you'll need your fully-realized long-term care plan to kick in, so the sooner you plan the better off you'll be.

If you're over 50, the best time to plan is now. It will make you a more informed consumer of long-term care services and will help you stay in control of tough decisions.

Nothing could be farther from the truth. Medicare does not cover the custodial services that help with ADLs. It will cover rehabilitation, home health care and durable medical equipment as long as they're deemed "medically necessary."

Medicaid may pay for your long-term care, but you need to meet strict eligibility requirements, which differ by state and often involve extensive documentation of assets. And don't think you can simply transfer all of your funds to your heirs and then apply. There's a five year "look back" rule that will require you to document where all of your money has gone.

There may be some government help if you're a veteran suffering from a service-related disability. To check your eligibility, go to VA.gov for details.

Have you priced long-term care costs lately? They're pretty darned expensive, and even with long-term care insurance, you'll be responsible for paying for some or all of the care you need.

Go to http://longtermcare.gov/costs-how-to-pay/costs-of-care-in-your-state/ to estimate what your costs could be. Then, think about the different ways you'll be able to meet that cost, either through an insurance policy, annuity, reverse mortgage, savings, pension benefits, social security benefits, or other personal income.

If there's a shortfall, long-term care insurance benefits could kick in.

Have you tried to be a 24/7 caregiver? It's pretty hard work, even for a devoted family member who loves you. No one person can be there for you every hour of every day and provide all of the care you'll need.

As part of your long-term care strategy, look into caregiving services in your area, including in-home providers, elder daycare centers, elder shuttles, meals on wheels, and other low-cost services offered in your area.

Managing a rotation of 24/7 caregivers is itself nearly a full-time job. You'll want your unpaid family members to spend their energy helping you manage your way through your need for assistance rather than resenting your lack of planning.

Really? What does your home look like?

Stairs, narrow doors, steps in odd places, low bathtubs, showers without handholds are the kinds of architectural obstacles that won't work if you have limited mobility or failing eyesight. And living alone won't help if you slip and fall and no one checks on you regularly.

At some point in time, living in a community or facility may make sense, and as part of your long-term plan, you'll want to consider it sooner rather than later.

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