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Changes in IRA & 401(K)s for 2012

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The IRS has made cost-of-living adjustments to IRAs and employer-sponsored retirement plans for 2012, so here is what you need to know about the newly altered contribution limits and phase-outs for these plans.

401(k) & IRA yearly contribution limits. In 2012, these are the annual contribution limits for some popular retirement savings vehicles.

·         401(k)s, 403(b)s, most 457 plans, Thrift Savings Plan (TSP) - $17,000 with an additional $5,500 catch-up contribution allowed for those 50 or older. (2012 COLA: $500.)
·         Traditional & Roth IRAs - $5,000 with an additional $1,000 catch-up contribution allowed for those 50 or older. (No 2012 COLA.)
·         Simple IRAs - $11,500 with an additional $2,500 catch-up contribution allowed for those 50 or older. (No 2012 COLA.)
·         SEP IRAs - $50,000 or 25% of an employee’s compensation, whichever is lesser. (2012 COLA: $1,000.)
·         415(b) defined benefit plans – the limitation on annual benefits under a defined benefit plan is increased to $200,000. (2012 COLA: $5,000.)1,2,3,4

With the increase, it's a good idea to check your contribution rate (in $ or %) to ensure you are still contributing the maximum amount, if that is your intent.


Traditional IRA phase-outs. The new MAGI limits affecting deductions for traditional IRA contributions are:

·         Singles & heads of household covered by a workplace retirement plan: $58,000-68,000. (2012 COLA: $2,000.)
·         Married filing jointly, with spouse making the IRA contribution covered by a workplace retirement plan: $92,000-112,000. (2012 COLA: $2,000.)
·         Married filing jointly, IRA contributor not covered by a workplace retirement plan but married to someone who is: $173,000-183,000. That MAGI range is for a couple rather than an individual. (2012 COLA: $4,000.)1

Roth IRA phase-outs. The MAGI limits affecting deductions for Roth IRA contributions are set as follows for 2012:

·         Singles & heads of household covered by a workplace retirement plan: $110,000-125,000. (2012 COLA: $3,000.)
·         Married filing jointly: $173,000-183,000. (2012 COLA: $4,000.)
·         Married filing separately, with the Roth IRA contributor covered by a workplace retirement plan: $0-10,000. (No 2012 COLA.)1

Lastly, a couple of notes for employers. When it comes to defining "key employees" in a top-heavy plan, the determination limit goes up $5,000 to $165,000 in 2012. The maximum taxable earnings amount for Social Security increases to $110,100 from $106,800.5

Best Regards,

Kevin Kroskey

Citations.
This article prepared by Peter Montoya.
1 www.irs.gov/newsroom/article/0,,id=248482,00.html [10/20/11]
2 money.usnews.com/money/blogs/planning-to-retire/2011/10/21/401k-and-ira-changes-coming-in-2012 [10/21/11]
3 www.irs.gov/retirement/participant/article/0,,id=211345,00.html [10/20/11]
4 www.irs.gov/retirement/article/0,,id=111419,00.html#12 [10/21/11]
5 www.lexology.com/library/detail.aspx?g=cbc951c9-7f27-4a92-93e3-4c0193f51347 [10/20/11]
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