There are reasons for relief in some quarters since the IRS release its official 2011 regulations for 401k, 403b, and other retirement plan contribution limits.
This information is renewed annually based the 2011 cost of living adjustment figures.
The good news is that the cost of living adjustment (COLA) numbers have stayed the same.
This makes a three year period of relative stability in contribution limits. There were some fears circulating that the limits were supposed to be lowered for 2011.
Each October the limits are re-calculated using a formula that is based on the inflation rate (which is connected to the COLA figures) in the third quarter versus the previous year’s quarter performance.
401k Contribution Limits for 2012 (Traditional and Roth)
With that said, it’s time to talk about possible affects on your 401k or other retirement plan. In other words, what is the maximum amount you can contribute in 2012? It stays at $17,000 for people aged 50 and younger. There is an additional catch-up contribution available as well. It holds at $5,500. The same limits apply to other plans, such as the 403b or the Thrift Savings Plan.
Keep in mind that your 401k maximum contribution limit is based on the combine total that you can make annually for all of your plans, regardless of whether they are standard plan configurations or Roth 401ks. The matching contributions made by your employer are not included in these final 401k contribution limits. This applies even if you contribute the maximum every year. The matches are added despite the 401k limits.
As a reminder, the above limits apply to both Traditional 401k’s and Roth 401k’s
Make Sure You’re Doing Your Part
Despite the fact that these higher limits have been available since 2009, many workers haven’t used them. Much of this can be explained by the market crash. Few people were ready to assess their 401ks in such a dismal economic environment. They chose to ignore this option. Still, employer-sponsored 401ks and IRAS remain a good form of long-term retirement investment. It’s largely a matter of compound interest, generous employer matches, and associated tax deductions. If you will use the new 2012 to plan for higher contributions, you can end up earning better retirement savings in the future.
Such policies may provide people with options for creating better tax strategies when taxes are on the rise. It may also be of service once the Bush-era tax cuts finally expire. The sluggish performance of the economy and other forecasts suggest that inflation may remain in the 2% range for a while. What this means for 401k limits is that the rate’s generally flat growth rate will lead to a similar percentage increase in future retirement account contribution limits.