The Internal Revenue Service’s New Contribution Limits

Posted by on Nov 12, 2012 in Income Protection, Retirement | 0 comments

The Internal Revenue Service’s New Contribution Limits

The Internal Revenue Service recently announced that contribution limits for employees who have certain types of plans were raised. The affected plans include 403(b), 401(k) and some 457 plans. In addition to this, thrift savings plans sponsored by the government were also affected. For these plans, the contribution limits were raised by $500.

Catch-up limits for people who are 50 years of age or older and participate in these plans remained the same. Since the cost of living increased enough to warrant an adjustment, the IRS decided it was time to change the limits for several types of retirement accounts.

For heads of household and singles who are covered by workplace plans in certain income brackets, the deduction for regular IRA contributions has been eliminated. This rule applies to those who have an adjusted gross income between $59,000 and $69,000. If one member of a couple filing jointly has a workplace retirement plan and makes IRA contributions, the phase-out bracket is between $95,000 and $115,000. IRA contributors who are married to individuals belonging to workplace retirement plans hit the phase-out point if their joint income is between $178,000 and $188,000.

In addition to these changes, the IRS also implemented a phase-out point for people who make contributions to Roth IRAs. The range for heads of household and singles is between $112,000 and $127,000. For couples filing jointly, the range is between $173,000 and $183,000. If a married person files a return separately from his or her spouse who is covered by a workplace retirement plan, the range is between $0 and $10,000.

For workers with low to moderate income, the AGI limit for the saver’s credit is $44,250 for heads of household. The limit is $59,000 for couples filing jointly and $29,500 for singles or couples filing separately. Limits for annual benefits under defined plans will also increase significantly. If participants left service prior to the beginning of the new year, limits will be calculated by multiplying compensation limits set forth previously. In the future, the limits for defined contribution plans will increase. To learn more about changes made by the IRS or to obtain answers to questions related to this information, discuss concerns with an agent. As a rule, it is helpful to discuss changes with an agent every year in order to stay current with the ever-changing rules of the IRS.