On October 20, 2011, the Internal Revenue Service announced cost of living adjustments affecting various limitations applicable to pension and other retirement plans (IR 2011-103).
On October 20, 2011, the Internal Revenue Service announced cost of living adjustments affecting various limitations applicable to pension and other retirement plans (IR 2011-103). Many of the limitations remain unchanged because they are indexed in $1000 or $5000 increments, but several will change for 2012. Some of the better-known limitations are:
- The limitation on elective deferrals (salary reduction contributions) under 401k, 403(b), and most 457(b) plans, as well as the federal government's Thrift Savings Plan, is increased from $16,500 to $17,000.
- The limit on "catch-up contributions" for those who are age 50 and over remains unchanged at $5,500.
- The limit on compensation that may be taken into account under a plan is $250,000, up from $245,000.
- The overall limitation on "annual additions" to a participant's account under a defined contribution plan is increased from $49,000 to $50,000.
- The basic limitation on the annual benefits under a defined benefit plan is increased from $195,000 to $200,000.
- The dollar threshold for determining who is a "highly compensated employee" is increased to $115,000, from $110,000.
- The limitations applicable to SIMPLE and SEP plans (other than the $250,000 compensation limitation) are unchanged.
- The phase-out of deductions for IRA contributions will occur between $58,000 and $68,000 of AGI (previously $56-66,000) for single individuals and unmarried heads of household who are covered by an employer's retirement plan; for married couples filing joint returns, the phase-out occurs between $92,000 and $112,000 of AGI (previously $90-110,000) where the contributing spouse is covered by an employer's plan, or between $173,000 and $183,000 (previously $169-179,000) where only the noncontributing spouse is covered by an employer's plan.
- The phase-out for taxpayers making contributions to a Roth IRA is from $173,000 to $183,000 (previously $169-179,000) for married couples filing jointly, and from $110,000 to $125,000 (previously $107-122,000) for unmarried individuals. (For married individuals filing a separate return and who are covered by an employer's retirement plan, the phase-out range remains at $0 to $10,000.)
- The dollar threshold for determining which officers are "key employees" in a top heavy plan is increased from $160,000 to $165,000.
- The Social Security Taxable Wage Base increases to $110,100 from $106,800.
A complete list of the indexed limitations, as well as a history of the changes since 1989, can be found at http://www.irs.gov/pub/irs-tege/cola_table.pdf.
If you have any questions regarding the new limitations, please feel free to contact the author of this Legal Alert, Jeffrey Ashendorf, firstname.lastname@example.org, any member of Ford & Harrison's Employee Benefits Practice Group or the Ford & Harrison attorney with whom you usually work.