COLA Increases Raise 2012 Contribution Limits

A 3.6% Social Security cost of living increase for 2012 has triggered increases in annual contribution and other dollar limits affecting 401(k) and other retirement plans, the Internal Revenue Service announced on October 20, 2011. These dollar limits were static from 2009 through 2011 due to the floundering economy. Here are some of the key changes (citations are to the Internal Revenue Code):

–Salary Deferral Limit for 401(k), 403(b), and 457 plans increases from $16,500 to $17,000. (The age 50 and up catch-up limit remains unchanged at $5,500, however.)

–Maximum total contribution to a 401(k) or other “defined contribution” plans under 415(c) increased from $49,000 to $50,000 ($55,500 for employees aged 50 and older).

–Maximum amount of compensation on which contributions may be based under 401(1)(17) increased from $245,000 to $250,000.

–Compensation threshold for “highly compensated employee” increased from $110,000 to $115,000.

–Dollar limit defining “key employee” in a top-heavy plan increased from $160,000 to $165,000.

–Maximum annual benefit under a defined benefit plan increased from $195,000 to $200,000.

–Social Security Taxable Wage Base increased from $106,800 to $110,100.

–IRA contribution and catch-up limits remain $5,000 and $1,000, respectively.