IRS Sets 2012 Pension Plan Limits

The Internal Revenue Service's cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2012 have been released. The IRS also made a few other changes that you might need to know about.

The retirement plan changes for 2012 are as follows:

• 401(k), 403(b) and 457 plan deferrals. The largest annual contribution an employee can make through salary deferrals has increased to $17,000. That's up from $16,500 in 2011.
• Catch-up contributions. The catch-up contribution limit for those 50 and older is unchanged at $5,500.
• Maximum contributions. The limit on what can be added to a defined contribution plan will increase to $50,000 from $49,000.
• Maximum pension benefits. The limit on the annual benefit under a defined benefit plan will increase to $200,000 from $195,000.
• Traditional IRA. 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.
• Roth IRA. 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.  For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
• Retirement Savings Contributions Credit. 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; and $28,750 for married individuals filing separately and for singles, up from $28,250.

Other key changes to be aware of include:

• Definition of a highly compensated employee. The earning threshold used in the definition of a highly compensated employee has been increased to $115,000 from $110,000.
• Benefits calculation. The amount of employee compensation that can be considered in calculating pension benefits and compensation to plans will rise to $250,000 from $245,000.

If you have any questions or would like more information, please contact Fred Schutz at 856-722-5300 ext. 201 or Dave Gill at ext. 210.

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