The 2011 401k limit for contributions for the whole year has been increased for 2012. The Internal Revenue System (IRS) has recently announced that cost-of-living adjustments were made on certain items in pension and other retirement plans for the coming year. The ceiling for the total contributions for the whole 2012 is now at USD 50,000.
The 2012 total limit for the year is a full USD 1,000 increase from this year’s maximum. The 2011 401k max for all contributions for the year is at USD 49,000, which is actually the same limit for 2009 and 2010. To clarify why there’s an increase this coming year, while there wasn’t any given in the previous years, the IRS stated in their announcement the following reasons: “… (1) the cost-of-living index for the quarter ended September 30, 2009, was less than the cost-of-living index for the quarter ended September 30, 2008; (2) the cost-of-living index for the quarter ended September 30, 2010, was greater than the cost-of-living index for the quarter ended September 30, 2009, but less than the cost-of-living index for the quarter ended September 30, 2008; and (3) the cost-of-living index for the quarter ended September 30, 2011, was greater than the cost-of-living indexes for all prior periods.”
The total contribution limit for the year that’s mentioned above consists of all your pre-tax deferrals and your post-tax contributions. Each also has its own limit – some of which were increased for 2012, while others were retained.
The 2011 401k limit on contributions coming from your pre-tax salary is USD 16,500 if you have a traditional or a safe harbor 401k. For 2012, it is increased to USD 17,000. However, if you have a SIMPLE 401k, the ceiling remains at USD 11,500, the same as this year’s.
For those who are at least 50 years old and would like to add more to their retirement plan via catch-up contributions, the maximum for this remains at USD 5,500 for traditional and safe harbor plans. SIMPLE 401k plan holders also have their catch-up contribution retained from the 2011 401k max of USD 2,500. Catch-up contributions are also deducted from your gross salary.
You can still add more to your retirement plan through your after-tax salary. If this benefit is provided in your plan, you can make after-tax contributions as long as their total together with all your pre-tax contributions will not exceed the limit for your total contributions for the year. And again, for 2012, it will be USD 50,000.
Indeed, if you’re a 401k plan holder, it would be best if you know all the ways by which you can maximize the contribution limits set by the IRS. Perhaps, you should talk to your plan consultant about how much you can actually save from your salary in 2012.