IRS Announces 2012 Cost of Living Adjustments for Dollar Limitations on Benefits and Contributions | Employment Law

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On October 20, 2011, the Internal Revenue Service 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. Of note:

• The elective deferral contribution limit for employees who participate in 401(k), 403(b), or 457(b) plans has increased from $16,500 for 2011 to $17,000 for 2012.
• The catch-up contribution limit under those plans 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 active participants in an employer-sponsored 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 an active participant in an employer-sponsored retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000 in 2011. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000 in 2011.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000 in 2011. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and-moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375 in 2011; and $28,750 for married individuals filing separately and for singles, up from $28,250 in 2011.

If you have any questions concerning these limitations or any other issues involving employee benefits, please feel free to contact us.