Retirement Plan LimitationsThe Internal Revenue Service (IRS) has announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged. 

Retirement Plan Limitations Include:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), and most 457 plans is increased from $16,500 to $17,000.
  • The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

The Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans, and requires that the Commissioner annually adjust these limits for cost of living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments. The limitations that are adjusted generally will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. 

Effective January 1, 2012, the limitation on the annual benefit under a defined benefit plan is increased from $195,000 to $200,000. The limitation for defined contribution plans is increased in 2012 from $49,000 to $50,000.

For more details on both the adjusted and unchanged limitations, please click hereYou may also view the IRS cost-of-living-adjustment table here. For more on retirement planning in general, please visit our section on Retirement Plans.

Topics: Retirement Planning

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