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401(k) Contribution and Tax-Deferral Limit Increases for 2012


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.

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