With our current inflation rate running over 3 percent, the IRS recently released increased 2012 contribution levels for employer sponsored retirement plans.
In order to plan effectively, employees should be notified of these higher limits so they can begin to prepare their 2012 financial plans.
For employees trying to max out their elective deferrals in a 401(k), 403b, 457 or profit sharing plan, most can now contribute up to $17,000 – up $500 from 2011. For employees over age 50, the catch-up is unchanged at an additional $5,500.
The overall defined contribution limit for both the employee’s own deferral, plus the employer contribution, has gone up an extra $1,000 to $50,000, which can offer a lift for employees who are using an after-tax option once they max out their pre-tax or Roth deferral.
Limits increased for highly compensated employees
Of course, your highly compensated employees (HCEs) may be limited on how much they can contribute. The wage threshold of an HCE has increased to $115,000 for any employee that earned that amount or more for their 2011 compensation.xiao cheng
Unfortunately, this is a double edge sword – those employees that have the income to set aside for the future are the same group that sometimes gets the shaft if the company fails top heavy testing. With the recent development of auto enrollment, more companies are feeling less of an impact on limiting their HCEs than in the past. Your HCEs will also see their Social Security tax increase, since the wage base has been raised to $110,100 – up from $106,800 from 2011.
Although the IRA contribution amount has not moved from the current $5,000 limit, the IRS has increased the income limits to take advantage of the full Roth IRA to $173,000 for married couples who file jointly, and $110,000 for single filers.
To tie all these changes together, hosting a retirement workshop or offering on-site 1 x 1 financial counseling sessions, can help spread the message to your employees.
This was originally published on the Financial Finesse blog for Workplace Financial Planning and Education.