Higher 2012 Contribution Limit From 2011 401k Maximum Contribution

The Internal Revenue System (IRS) recently announced the 2012 adjustments on pension and retirement plans, including 401k. USD 50,000, an increase from the 2011 401k limit of USD 49,000, is now the total maximum contributions one can give for his 401k plan for the whole 2012. Every year, all the limits for pension and retirement contributions are indexed for inflation every year.

The employee’s pre-tax salary mainly funds his 401k. For those who participate in a traditional or safe harbor plan, this pre-tax deferral can be as much as USD 17,000 for 2012. It is a USD 500-increase from this year’s limit. But for SIMPLE 401k participants, the limit for pre-tax deferral is still the same as this year’s maximum – USD 11,500.

For those who are aged 50 and above and would like to contribute more to their 401k plan, they can make a catch-up contribution. Your salary before withholding federal income tax is also the source of this contribution. The 2012 catch-up contribution limits are retained from the 2011 401k maximum contribution. For those who have a traditional or a safe harbor plan, participants qualified for catch-up contributions can add up to USD 5,500 more to their pre-tax deferral. SIMPLE 401k plan participants can add a catch-up contribution of still up to USD 2,500.  

On top of your pre-tax deferrals, you can still put in more money in your retirement plan with your after-tax salary. However, your after-tax contribution, when added with your pre-tax deferrals, should not exceed the total contribution limit set for the year, which is USD 50,000 for 2012.

All the ways by which you can maximize your 401k may still not be known to you. If you’re looking into maximizing your contributions in your plan for the coming year, consult your 401k adviser.