Bankrate's tax expert Kay Bell outlined increases related to 401(k)s and IRAs. Note that people 50 or older can contribute as much as $23,000 in a 401(k) in 2013. That's not chump change.
The IRS also announced increases in the deductible amount of premiums paid for long-term care insurance policies. Many people consider long-term care insurance too expensive to buy, but before you leap to that conclusion, calculate how far the tax deduction will go toward helping you pay the bill.
- Age 40 or younger, $360.
- Age 41 to 50, $680.
- Age 51 to 60, $1,360.
- Age 61 to 70, $3,640.
- Older than 70, $4,550.
In 2013, in order to take advantage of these deductions, your total expenditures on health care must exceed the new 10 percent of adjusted gross income, or AGI, threshold that limits the deductibility of health care. If you'll be 65 or older next year, however, you'll still get to use the current 7.5 percent threshold on your 2013 Schedule A. That exception is in effect through 2016.
If you are self-employed -- say you sell used golf balls on eBay -- you can deduct 100 percent of your long-term care insurance premiums, up to the amounts listed above. You also can deduct the amount of premium you paid for insurance for your spouse or other dependents -- up to the limits above. You don't have to meet the current 7.5 percent AGI threshold in order to take this deduction, but you can't deduct more than you earn. If your business is incorporated, the rules are more complex and you'll definitely want to get your accountant to help you figure this out.
It is also worth noting that if you choose to pay the long-term care insurance premiums for your children or someone else, these premiums won't count against your gift-tax exclusion of $13,000 per person, per year. (That exclusion amount goes up to $14,000 in 2013, by the way.)
If you have to claim against your long-term care insurance, the money you receive isn't taxable unless you get more than $320 per day. You'll owe the IRS tax for the amount you receive over that.
Like any other sort of insurance, you hope you never have to use it. But if you aren't so lucky, long-term care insurance can protect you from being impoverished at a time you are least able to do something about it.