The IRS is allowing investors saving for retirement to add a little more to most of their tax deferred accounts than previous years. The 2012 contribution limits cost-of-living increase for IRAs (Traditional, Roth, SEP) and 401(k) plans are listed below.
2012 Combined Traditional and Roth IRA Contribution Limits
If you are under 50 years of age at the end of 2012: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2012. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).
If you are 50 years of age or older before the end of 2012: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2012. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified AGI.
There is a limit on the amount of elective deferrals that you can contribute to your traditional or safe harbor 401(k) plan.
The limit is $17,000 for 2012, up $500 from 2011.
Generally, all elective deferrals that you make to all plans in which you participate must be considered to determine if the dollar limits are exceeded.
Limits on the amount of elective deferrals that you can contribute to a SIMPLE 401(k) plan are different from those in a traditional or safe harbor 401(k).
The limit is $11,500 for 2012, no change from 2011.
Although, general rules for 401(k) plans provide for the dollar limit described above, that does not mean that you are entitled to defer that amount. Other limitations may come into play that would limit your elective deferrals to a lesser amount. For example, your plan document may provide a lower limit or the plan may need to further limit your elective deferrals in order to meet nondiscrimination requirements.
Catch-up contributions. A plan may permit participants who are age 50 or over at the end of the calendar year to make additional elective deferral contributions. These additional contributions (commonly referred to as catch-up contributions) are not subject to the general limits that apply to 401(k) plans. An employer is not required to provide for catch-up contributions in any of its plans. However, if your plan does allow catch-up contributions, it must allow all eligible participants to make the same election with respect to catch-up contributions.
If you participate in a traditional or safe harbor 401(k) plan and you are age 50 or older:
The elective deferral limit increases by $5,500 for 2012.
If you participate in a SIMPLE IRA plan and you are age 50 or older:
The elective deferral limit increases by $2,500 for 2012.
The catch-up contribution you can make for a year cannot exceed the lesser of the following amounts:
The catch-up contribution limit, above, or
The excess of your compensation over the elective deferrals that are not catch-up contributions.
Participation in plans of unrelated employers. If you participate in plans of different employers, you can treat amounts as catch-up contributions regardless of whether the individual plans permit those contributions. In this case, it is up to you to monitor your deferrals to make sure that they do not exceed the applicable limits.
The rules relating to catch-up contributions are complex and your limits may differ according to provisions in your specific plan. You should contact your plan administrator to find out whether your plan allows catch-up contributions and how the catch-up rules apply to you.
Additional limits. There are other limits that restrict contributions made on your behalf. In addition to the limit on elective deferrals, annual contributions to all of your accounts – this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to your accounts – may not exceed the lesser of 100% of your compensation or $50,000 for 2012. In addition, the amount of your compensation that can be taken into account when determining employer and employee contributions is limited. The compensation limitation is $245,000 for 2011 and $250,000 for 2012.
How much may be contributed to a SEP?
Annual contributions an employer makes to an employee’s SEP-IRA cannot exceed the lesser of:
25% of compensation, or
$50,000 for 2012 (subject to annual cost-of-living adjustments for later years).
The limits in the preceding sentence apply in the aggregate to contributions an employer makes for its employees to all defined contribution plans, which includes SEPs. Only up to $250,000 for 2012 (subject to annual cost-of-living adjustments for later years) of an employee’s compensation may be considered. Contributions must be made in cash. Property cannot be contributed.
Are there other limits on contributions?
Yes, if an employer contributes to another defined contribution plan for its employees, for example, a 401(k) plan, an annual addition limit applies. The annual addition limit is the lesser of $50,000 for 2012 (subject to annual cost-of-living adjustments for later years) or 100% of the employee’s compensation. In determining this limit, contributions for employees to all defined contribution plans of the employer, which includes SEPs, must be included.