An integral part of our planning for clients is our continuous monitoring of new thresholds that affect retirement plan contributions, Social Security taxation and Medicare premiums. Listed below are the figures for 2012. There have been a few changes in pension plan contributions for the 2012 tax year due to cost of living adjustments (COLA) announced by the IRS. These changes are noted in bold.
2012 Retirement Plan Contributions
401(k), 403(b) and 457 Plans
Maximum annual contribution to 401(k), 403(b) and 457 plans $17,000
Catch-up contribution for those age 50 and over $5,500
Max total for those age 50 and over $22,500
IRAs – Roth and Contributory: No changes
Maximum annual IRA contribution $5,000
Catch-up contribution for those age 50 and over $1,000
Max total for those age 50 and over $6,000
SIMPLE – Employee Deferral: No changes $11,500
Catch-up contribution $2,500
Max total for those age 50 and over $14,000
If you participate in any of the above plans, and can maximize your contributions, we recommend that you visit with your Benefits Department and take advantage of these tax-deferred savings.
The good news is there will be a 3.6% cost-of-living adjustment in Social Security benefits beginning in January 2012, the first such increase since 2009. That reflects a rise in the Consumer Price Index (CPI-W) from the third quarter of 2011, largely due to increases in energy costs. Just as a reminder: The age at which one can collect full benefits is also going up. For those born in 1941, full retirement is age 65 years and 8 months; for those born in 1942, it is 65 years and 10 months. For those born between 1943 and 1954, full retirement age is 66. For those born in years 1955 to 1959 the basic retirement age is 66 plus additional months, contingent on your birth year. Full retirement age will gradually increase to 67 for those born in 1960 and later.
Please note: If you decide to delay the receipt of your Social Security benefits until after age 65, you should still apply for Medicare benefits within three months of your 65th birthday. If you wait, you may pay more for your Medicare Part B (medical insurance) and Medicare Part D (prescription drug) coverage. We are planning a follow-up article entitled “Medicare Primer for the Baby Boomers” that will give you some helpful hints on what you will need to begin the process of applying for Medicare.
The Social Security Administration has raised the wage base (or the amount of income against which Social Security withholding tax is applied) to $110,100, up $3,300 from 2011. It’s estimated the change will impact about 10 million taxpayers.
Retirement earnings tests are imposed on individuals who are working and collecting Social Security benefits. For 2012, there have been a few changes. The maximum amount of earnings to still receive full benefits is as follows:
- Full retirement age: No limit on earnings
- In the year full retirement age is reached, the maximum goes from $37,680 to $38,880. For every dollar earned over this limit, $1 in benefits for every $3 in earnings will be withheld (or taxed).
- If you are under full retirement age, your earnings limit is rising to $14,640 from $14,160. For every dollar earned over this threshold, $1 in benefits will be withheld (or taxed) for every $2 in earnings.
Medicare Part B premiums (medical insurance) have been revised for 2012. The standard Medicare Part B monthly premium will be $99.90 in 2012, a $15.50 decrease in the 2011 premium of $115.40. Also the Part B deductible will drop to $140, a decrease of $22. There are also slight reductions in Part B costs for other earnings brackets, indicated accordingly.
MAGI Range MAGI Range
for single taxpayers for couples filing jointly Part B Cost
$85,000 or less $170,000 or less $99.90 ($15.50 less)
$85,001 – $107,000 $170,000 – $214,000 $139.90 ($21.60 less)
$107,001 – $160,000 $214,000 – $320,000 $199.80 ($30.90 less)
$160,001 – $214,000 $320,001 – $428,000 $259.70 ($40.20 less)
Over $214,000 Over $428,000 $319.70 ($49.40 less)
Similarly, average premiums for popular Medicare Advantage plans will dip slightly in 2012. Under the terms of the Affordable Care Act, Medicare recipients will also benefit from free preventive care services and a 50% discount for covered prescription drugs if they spend enough to put them in the “doughnut hole.”
As always, if you have any questions regarding your financial planning, please do not hesitate to give us a call. We’ll be happy to help you.