401(k) Contribution Limits for 2012
Thanks to inflation, the maximum amount of money you may contribute to your 401(k) in 2012 will change. This applies to 403(b) accounts, as well. For 2009, 2010, and 2011, the maximum you may designate to your 401(k), not including your employer’s matching contributions, was $16,500, but in 2012, this will finally increase to $17,000. If you are age 50 or older, you can contribute an additional $5,500, which remains the same from 2011, beyond this maximum for a total of $22,500.
The total contribution limit, including employer contributions, has increased from $49,000 to $50,000.
For anyone who contributes to a traditional IRA, this is normally tax deductible, but this benefit phases out. In 2011, the phase-out occurred for single taxpayers whose modified adjusted gross income fell between $56,000 and $66,000, but in 2012, this phase-out begins at $58,000 and is fully eliminated for those earning $68,000. Similar increases pertain to married (filing jointly) taxpayers resulting in a phase-out between MAGIs of $92,000 to $112,000.
This past year, I worked fully for myself. Without an employer, I had no access to a regular 401(k), but I did initiate an Individual 401(k), which follows the same rules. By the end of the year, I expect to have maximized the employee portion of my 401(k) contributions at $16,500 with extra invested for the employer portion.
To lower your tax burden this year by up to $5,000, consider opening up an IRA (Individual Retirement Account). Mint.com has an IRA wizard that can show you what kind of IRA to open and where to open it.
My 2010 contributions fell short from the maximum by about $700, and a portion of that is due to leaving the company in the middle of December. I received the full company match, a 100% match on the first 4% of my salary that was contributed to the plan, in every pay period.
In 2009, I contributed the maximum $16,500, but I didn’t plan for an extra paycheck at the end of the year, so that last paycheck did not include a contribution to my 401(k). As a result my imperfect calculation, I missed out on a portion of my employer’s matching contribution. Some employers match after taking all contributions for the year into account, but mine contributes on a pay period basis. Any pay period that I did not contribute to my 401(k), the company did not match.
In 2008, I missed the full contribution amount by $1,000. That year, I made several changes to my contribution rate and lost track of what my rate needed to be in order to maximize my contribution.