2012 Retirement Plan Maximum Contribution Limits

2012 401k, Roth 401k, IRA, and Roth IRA Contribution Limits Announced by IRS!

The IRS has announced their 2012 retirement contribution limits for 401k and Individual Retirement Accounts (IRA). Maximum contribution amounts are the same for both “traditional” and “Roth” account options.

2012 401k Contribution Limits (Roth and Traditional):

2011 401k Contribution Maximum: $16,500

2012 401k Contribution Maximum: $17,000 (a $500 increase!)

*The 401k catch-up provision for those 50 and older is unchanged at $5,500

2012 IRA Contribution Limits (Roth and Traditional):

2011 IRA Contribution Limits: $5,000

2012 IRA Contribution Limits: $5,000

*The IRA catch-up provision for those 50 and older is unchanged at $1,000

2012 Roth IRA Phase Out Range:

Roth IRAs are an excellent retirement account option that let you invest after tax dollars into an Individual Retirement Account which will then grow tax free (which can then be invested in virtually any investment vehicle), unfortunately, after you make a certain amount of money, your ability to invest in a “Roth” IRA phases out (I guess that’s why they call it the “Roth Phase Out”).

Single: Roth IRA phase out starts at $110,001 and ends at $125,000
Married Filing Jointly: Roth IRA phase out starts at  $173,001 and ends at $183,000
Married Filing Separately: Roth IRA phase out starts at $1 and ends at $10,000

2012 IRA Phase-out Calculation:

How To Calculate How Much Money You Can Put in a Roth IRA if You Fall Within the Phase-out:

Calculating your Roth IRA phase-out contribution limit may seem tricky, but it there is a very simple formula you can use to figure it out.

First, determine what your annual income is to determine if it falls between the phase-out range listed above.

Second, if your income does fall within the appropriate phase-out range above, deduct the lower limit from your salary.

Example: Let’s say you’re married filing jointly and you and your spouse’s combined income is $180,000.  For this step simply subtract the lower phase-out limit ($173,001) from your income ($180,000):

$180,000 – $173,001 =  $6,999

Third, divide the difference you calculated above by $10,000 (this is the “spread” of the phase out).

$6,999/$10,000 = .6999 or about 70% (in other words, you are ineligible to for 70% of the Roth IRA contribution amount.

Fourth, since you are only eligible for 30% of the “maximum” Roth IRA contribution limit, you can only contribute 30% of $5,000 or $1500 if you are married filing jointly making $180,000 per year.

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