2012 Retirement Plan Cost-of-Living Increases

By Marvin Rotenberg, IRA Technical Expert

The Internal Revenue Code sets dollar limitations on benefits and contributions applicable to qualified retirement plans and IRAs.  Code Sec. 415 provides for incremental adjustments to these limits based on annual cost-of-living (COLA) increases measured by the US Consumer Price index (CPI).

On October 20, 2011 the IRS announced COLA adjustments applicable to dollar limitations for pension plans and other retirement-related items for tax year 2012. Many limitations will change since the CPI increase met the statutory threshold that triggers their upward adjustment. Listed below are a few of the items that are scheduled to increase in 2012.

IRA Deduction Phase-Out (for Modified Adjusted Gross Income starting at):

for individuals who are covered by an employer plan:
– $92,000 for joint filers (up from $90,000 in 2011)
– $58,000 for Single/ Head of Household filer (up from $56,000 in 2011)

for individuals not covered by an employer plan but the spouse is covered:
– $173,000 (up from $169,000 in 2011)

Defined Contribution Plan Annual Additions Limitation:
– $50,000 (up from $49,000 in 2011)

Defined Contribution Plan Maximum Compensation (including SEPs):
– $250,000 (up from $245,000 in 2011)

Elective Salary Deferrals for 401(k) & 403(b) Plans:
– $17,000 (up from $16,500 in 2011)

Unchanged are:

IRA Contribution Limit:
– $5,000
– $1,000 catch up contribution for individuals age 50 or older

401(k) & 403(b) Plan Catch Up Contribution:
– $5,500 for individuals age 50 or older

SIMPLE Plan Elective Salary Deferral:
– $11,500
– $2,500 catch up contribution for individuals age 50 or older

SEP Minimum Compensation:
– $550

Check the IRS website (http://www.irs.gov/retirement/article/0,,id=96461,00.html) for additional information related to COLA increases for 2012.