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401k and IRA changes coming in 2012

Workers will be able to sock more away for retirement while enjoying tax benefits.

By MSN Money Partner Oct 24, 2011 1:18PM

This post comes from Emily Brandon at partner site U.S. News & World Report.


U.S. News on MSN MoneyWorkers will be eligible to contribute an extra $500 to their 401ks next year, the Internal Revenue Service announced. Employees with higher incomes will also be eligible to get a tax break for saving in a traditional IRA, contribute to a Roth IRA, and qualify for the saver's credit.


Here's a look at how 401k and IRA rules will change in 2012.


Higher 401k contributions. The contribution limit for 401k's, 403b's, and the federal government's Thrift Savings Plan will increase to $17,000 in 2012, up from $16,500 in 2011. However, catch-up contribution limits for those age 50 and over will remain $5,500. (How much will your 401k provide? Try MSN Money's calculator.)


Increased IRA income limits. IRA contribution limits will remain $5,000 in 2012, and $6,000 for those age 50 and older. And, like this year, only workers who earn below certain income levels get a tax break for contributing to a traditional IRA. But those income limits will relax slightly next year.

The tax deduction for traditional IRA contributions will be phased out for singles and heads of household with workplace retirement plans who have modified adjusted gross incomes between $58,000 and $68,000 in 2012 ($92,000 to $112,000 for couples), up $2,000 from 2011. For IRA owners without a retirement plan at work, the deduction is phased out if the couple's income is between $173,000 and $183,000, up $4,000 from last year. Post continues after video.

Roth income limits relaxed. The income limits for making contributions to a Roth IRA will be between $110,000 and $125,000 for singles and heads of household in 2012, up $3,000 from 2011. For married couples filing jointly the income limits will increase by $4,000 to a phase-out range of $173,000 to $183,000.


Expanded saver's credit. Workers with slightly higher incomes will be able to get a tax credit worth up to $1,000 ($2,000 for couples) for low-income workers who save for retirement. Single workers who contribute to a retirement account such as an IRA or 401k may be able to claim the saver's credit if they have a modified adjusted gross income of up to $28,750 in 2012, up $500 from last year. The income limits will increase by $1,000 to $57,500 for married couples filing jointly and by $750 to $43,125 for heads of household.


More on U.S. News & World Report and MSN Money:

Oct 24, 2011 2:39PM




Fast Facts:


  • There are an estimated 76 million Baby Boomers over the age of 55 years
  • It is estimated that approximately 41 million are over the age of 65
  • It is, therefore the case that approximately 35 million are 55 to 65 years of age
  • There is a need for Disaster Relief
  • There is a need for additional/increased​ consumer spending

            As the recently retired Executive Director of the Montana Association of Counties I have been disappointed in the response to the financial crisis that arose in 2008. The actions taken by the government, in my opinion, did little by way of establishing consumer confidence and as a retiree I personally felt the impact with the loss of value in my retirement account and no one bailed me or the other millions of Americans who saw the value of their accounts diminish. I have spoken with our congressional delegation and have received little by way of a response from them.

With consumer confidence at an all time low it is proposed to establish what I have come to think of as "The Consumer Participation Recovery Act, 2011. (CPR) Very simply, it would provide a tax holiday by allowing each taxpayer to withdraw $25,000 from their retirement account prior to October 31, 2012 without the penalty for early withdrawal for individual 55 years to 65 or federal tax liability. An additional consideration would allow any tax payer to withdraw an additional $50,000 prior to October 31, 2012 from their "tax sheltered retirement account" to buy residential real estate without regard to the early withdrawal tax penalty or federal tax liability,


 I would appreciate a response with your considered evaluation of the "concept".


    Clifford Gordon Morris, Ph.D.

    1375 Beaverhead Road

    Helena, Montana 59602


Oct 24, 2011 3:26PM
Adjusted for the real rate of inflation, tax payers actually get to put less away.  This article really is misleading.
Oct 24, 2011 4:25PM
What gets me about this, is "Lets encourage people to add more to their IRA's" but then we take a look at page 58 (Page 58 HC Bill: Gov't will have real-time access to individuals' finances) and 59 (Page 59 HC Bill lines 21-24: Gov't will have direct access to your bank accounts for elective funds transfer. Time to carry more cash) of Obamacare and it says that the government can hasvedirect access to our checking accounts and they can take the cash value out of the 401k's, etc. So, when they encourage us to put more in, are they really setting us up to lose that money to the government to fund their activities?
Oct 24, 2011 5:52PM

Most of the adjustments mentioned in this article sound like increases on the scale of inflation. No offense, but, big deal. It’s the least they can do.

How about this for some real change. How about forgiving all taxes on deferred income in IRA’s and qualified retirement savings plans for people who don’t withdraw until age 65 or 30 years, whichever comes first. Now that would be a real incentive to save. Kind of like forgiving taxes on repatriation of deferred offshore income and capital like many large corporations are now lobbying for.   

Oct 24, 2011 4:07PM
Also, I do not have that kind of expendable income to contribute to medicare or into S.S. I should be able to put MY MONEY where i want. Not back into the theives hands.
Oct 24, 2011 8:15PM

What bothers me more than anything is the damn government constantly trying to use the tax code as a behavior modification tool.  To wit....


Government wants more houses sold, modify peoples behavior to entice them to buy a house via a tax credit. (home buyers credit)


Government wants more cars sold, modify peoples behavior by giving them a tax credit on certain kinds of cars if they'll turn in their old ones.  (cash for clunkers)


Government wants more people to save, then modify their behavior by enticing them to save in an IRA because of a tax deduction.


Government wants less people smoking, then tax that product more.


And it goes on and on and on.  Not to mention all the incessant regulations.


I don't need the damn putrid F#)*@$ government nanny state trying to micro manage every aspect of my life.


What I need is for them to get the hell out of my life. AND STAY THE HELL OUT!!!


Taxes are meant for, and constitutionally authorized for, one thing and one thing only, and that is to fund government.  Taxes are not authorized to be used as a behavior modification tool.


And it's way past time that it be stopped.

Oct 24, 2011 5:28PM
well it looks like a few hundred more pages will be added to the US tax code. Looks like I need to invest in the tax preparers stocks. lmao!
Oct 24, 2011 3:11PM

Yes...lets put more in there for the Banks and Wal Street to take like the last time...

Oct 24, 2011 5:48PM
Forget about the BIG BANKS, and Wall Street.  Put your IRA'S in your local Credit  Unions, and your community banks. Ya I know you won't earn that much in interest ,but you will not be giving it to the people who ripped you off. It's time to bring our money home , and leave the greedy wall street traders to their own demise.
Oct 24, 2011 4:12PM

Dear Mr. Morris,

Bravo.  Your idea is one of the first that I believe would lend some relief to senior citizens, who are making nothing on their saving because of low interest rates.  Where can I sign on?



And to dsopt.........I don't give a rat's a$$ what you do with yours, but I know I can handle my withdrawal in a way that benefits me financially.  And those who want to go to Vegas, well that's none of your fricking business, is it.

Oct 24, 2011 4:24PM
I switched to Tax Free Municipal Bonds  at 4.25-4.50 %   paying annually..
Oct 25, 2011 11:11AM
$500 more isn't a lot but I'll take it.
Oct 24, 2011 8:17PM
Ernest, you can have mutual funds as part of your IRA.
Oct 24, 2011 11:04PM
Now let me get this straight.  A government workers thrift saving plan will increase, but you common folk out there supporting government with 401, simples, and IRA's will not increase.  Damn, I guess I just don't get it.  Government gets all the breaks and us poor souls who support them don't get an increase????  Boy, I just am to dumb to understand that.  Maybe we ought to get a ;new group in congress and they may respect the common people who pay their taxes and help america!!
Oct 24, 2011 4:57PM
Wealth is not a constant. There is obviously more wealth even today after so much wealth destruction of the last few years than there was 50 years ago. The concept that wealth is a constant is the myth that socialist would like to perpetuate under "redistribute the wealth" banner.
Oct 24, 2011 4:01PM

FYI for Mr. Morris


Avg. IRA balances per Google search (MSN won't let me post the link - thinks it is spam)


         Age        Amt

55 – 64: $69,127
65 – 75: $56,212


If the average 55-64 yo takes out 25K from their IRA it will leave an average of about 45K - that will unlikely provide much of a paycheck in retirement at 2.5% interest (~$1125/yr.).  Granted they will have other sources of income but I am more interested in improving my nest egg than stimulating the economy. 


As far as the tax free money to buy real estate that is an interesting proposition, but I personally am not interested in being a landlord buying a second property, (I am 51 years old) and live in a house I like that will be paid for in 2 years, so personally I have no interest in buying more real estate, but at the same time am worried that anemic growth rates will hurt my long term income.  A safer way to do this could potentially be to buy a REIT, but those took a nosedive along with the market in 2008 so nothing is without risk. 


All in all an interesting plan but once the politicians get a hold of it look out, who knows where it would end up.  Some people would probably go to Vegas and blow it. 

Oct 24, 2011 4:03PM
I have an HSA, health savings account. I feel that I should not have to pay into medicare. I am providing for myself and family.
Oct 24, 2011 5:59PM



Wealth is a constant; the wealth destruction said it really did not exist. It every one 401K just doubled; would the return or expected return on the investments double, not its value? Its expected return should be its true value.

Oct 24, 2011 3:43PM
Another wall street backed republican plan to take more money for themselves.  Note 401k plans allow "fees" wherein the crooks get to take part of the principal to pay themselves their fat paychecks regardless of market direction.  Bankers have America brainwashed because they own the media too. Wake up and be counted. Don't let the republicans (or Democrats) in. Throw them all out - no incumbents, no lobbyists, run for office 99 percenters.
Oct 24, 2011 6:56PM

Why put your money into the IRA sinkhole? I have a friend who lost over half of his investment. I put my money into Mutual funds and lost nothing and the interest in tax free!

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