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401(k) Contribution and Tax-Deferral Limit Increases for 2012
10/24/2011:
Here’s some good news for retirement savers. For the first time in four years, the IRS has increased the contribution and tax-deferral limits for 401(k) plans. Employees can now contribute up to $17,000 per year starting in 2012. Those over fifty years of age may still make additional catch-up contributions of $5,500 a year (or $22,500 per year in total) to their 401(k) accounts.
And if you receive company matching contributions or profit sharing, the all-in tax-deferral limit has been increased from $49,000 to $50,000 for 2012. Here are the key changes to know:
401(k) Limit Increases for 2012
| |
2012 |
2011 |
| Employee contribution limit |
$17,000 |
$16,500 |
| Annual limit per individual |
$50,000 |
$49,000 |
| Age 50+ catch-up amount |
$5,500 |
$5,500 |
| Annual compensation limit |
$250,000 |
$245,000 |
| Highly compensated employees |
$115,000 |
$110,000 |
Growing Advantage for 401(k)s vs. IRAs
Unfortunately, traditional IRA limits remain unchanged which increases the tax advantages for 401(k) savers versus those opting to use IRAs or don't have access to a 401(k) plan:
401(k) Advantages Over Traditional IRAs in 2012
| |
401(k) |
IRA |
| Annual limit per individual |
$50,000 |
$5,000 |
| Age 50+ catch-up amount |
$5,500 |
$1,000 |
| Roth income limit |
None |
$125K* |
| Penalty-free access, if needed |
Yes, via a loan |
No |
*Beginning at $110K, the amount you are allowed to contribute begins to decrease, hitting $0 at $125K.
