The Internal Revenue service announced that the cost of living adjustments have affected the dollar limitations for pension plans and other retirement-related items for the 2012 Tax Year. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds. However, other limitations will remain unchanged.

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from 16,500 to $17,000.

The catch up contribution limit for those aged 50 ad over will remain unchanged at $5,500.

The deduction for taxpayers making contributions to a traditional IRA will phase out for singles and heads of household who are covered by a workplace retirement plan have modified adjusted gross income (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 makes the IRA contribution is covered by a workplace retirement plan, in 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 of the couple’s income is between $173,000 and$183,000, up from $169,000 and $179,000.

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 form $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.

Please contact us for more information about the changes above and how it may impact you.