Header Section

Smart money/Coming Soon

2012 Retirement Plan Cost-of-Living Increases

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.

-By Marvin Rotenberg and Jared Trexler


Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

I have your book, but unfortunately it is at my cabin so I don't have access right now. I am inheriting a Roth IRA from my wife, who recently passed away at 65. It was converted to a Roth in December 2008.

First question: Is it better to keep it as a separate Roth IRA, or add it into my existing Roth IRA?

Second question: Do I have to take RMDs on this account now or later?

John in AZ

Question 1. As a spouse beneficiary you have two choices, other than taking a complete distribution.

A. You can establish a beneficiary Roth IRA or
B. Make it your own Roth IRA

If you select option B you will not have to take required minimum distributions (RMDs). With Option A, you would be required to take RMDs beginning in the year the deceased spouse would have attained age 70 1/2. Option B gives you the most flexibility. You can take distributions at any time (or not). It is your option. Distributions will be tax-free. Make sure you name your own beneficiary when you select your option.

Question 2. If you make it your own Roth IRA, you could combine it with your own Roth IRA.