IRS Benefit and Contribution Limits for 2012 – Good News!

Posted on 05. Jan, 2012 by SParker Admin in Uncategorized

For those of you who are fortunate to have funds to stuff away in your 401(k) or other retirement plans, the IRS has increased the amount you can contribute for 2012. The limits had been stalled for 2010 and 2011 because increases are tied to a statutory cost of living increase, and there had been none!

However, once certain thresholds are met, the amounts you can save this upcoming year on a tax-advantaged basis increase. Here’s what you need to know for 2012.

Elective Contributions to IRAs, 401(k)s and Other Qualified Plans

• Elective deferral contribution limits to 401(k), 403(b) and 457(b) have increased to $17,000, up from $16,500 – the rate that had been in effect since 2009.
• Catch up contributions for those aged 50 and above remains at $5,500.
• Traditional IRA contributions, for participants in employer plans, are phased out as follows:
• For single filers and heads of households who have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 to $66,000 which had been in effect since 2009.
• For married couples filing jointly, in which the spouse who makes the contribution is covered by his/her employer’s plan, the phase-out range is $92,000-$112,000, again up $2000 on each end of the spectrum from 2011.
• For a married taxpayer who is not an active participant in an employer plan, but is married to someone who is, the deduction for an IRA contribution is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000 in 2011.
• Roth IRA contribution phase-out limits also have some changes:
• For single filers, and heads of households, the income phase-out range is $110,00 to $125,000 up from $107,000 to $122,000 in 2011.
• For married couples filing jointly, the AGI phase-out range is $173,000 to $183,000 for 2012, up from $169,000 to $179,000.
• For married individuals who file separately and participate in an employer sponsored plan, the phase-out range remains $0-$10,000.

Benefit Plan Contribution Limits: These limits remain unchanged from 2010, as follows:

• The total amount by which an individual’s individual account pension plans, through both employee and employer contributions, remains as the lesser of 25% of the employee’s total compensation, or $50,000, which is up from $49,000 for 2011.
• The annual benefit limit for defined benefit pension plans increases from $195,000 to $200,000.

Other benefit plan limits to note include:

• The minimum earnings threshold for eligibility for participation in a Simplified Employee Pension (SEP) remains unchanged at $550.
• The limitation for SIMPLE retirement accounts remains unchanged at $11,500.
• The maximum annual compensation that can be taken into account for retirement plan purposes is increased from $245,000 to $250,000.
• The compensation threshold for determining a highly compensated employee (HCE) has increased to $115,000 from $110,000.
• Like 401(k) plans, the maximum deferral for participants in the Federal government’s Thrift Savings Plans, and Tax Sheltered Annuities is increased from $16,500 to $17,000.

These figures are issued annually by the IRS, this year published on October 20, 2011. Other changes not covered here include: limitation on maximum account balances in ESOPs (Employee Stock Ownership Plans), fringe benefits paid to “control employees,” savings contribution credits for lower income taxpayers and special elections for single employer plans.

Please feel free to contact us if you have any questions or concerns about taxes and your retirement savings.