Starting in 2012 your 401k contribution limits will rise, thanks to inflation. Every year the IRS is required to calculate cost of living adjustments if certain CPI (Consumer Price Index) thresholds are met. The last time this adjustment happened was three ago heading into the 2009 tax year. Since then the CPI has remained low enough to not trigger any cost of living adjustments until now.
Maximum 401k Contribution Limits
If you save for retirement through a 401k the maximum amount you can contribute will be higher in 2012. The new maximum contribution limits will also apply to 403b and most 457 plans.
The maximum contribution limits for 401k retirement plans will be $17,000 for 2012. Slightly higher than the 2011 401k contribution limits of $16,500. This amounts to an additional $500 ($41.67 per month). Which doesn’t seem like much, but every little bit counts when it comes to retirement. This new contribution limit applies to Roth 401k plans as well.
If you’re in the situation of having multiple 401k plans from several employers, this contribution limit change is not on a per plan basis. So if you have two jobs both providing a 401(k), you’ll only be able to contribute a maximum of $17,000 between the two plans.
401k Catch-Up Contribution Limits
Going to be 50 or older in 2012? You’ll be eligible for additional catch-up contributions. The 2012 catch-up contribution limits will remain the same at $5,500. If you’re already maximizing your 401k and IRA contributions, this offers a great opportunity to save even more money with retirement right around the corner.
Don’t Forget the Employer Match
Some employers provide an additional benefit to your 401k, called matching contributions. Any matching contributions that your employer makes does not count toward the $17,000 contribution limit. Plus, this is free money that your employer wants to pay you in future income. Take advantage of it. At the very least you should be trying to maximize your employers matching contributions every year.
Not all 401k retirement plans are the same. Some employers impose certain rules that are specific only to their plan. Make sure you review all your 401k plan documents each year. If there’s something you don’t understand, contact the plan administrator for more information.