IRS Releases 2012 Cost-of-Living Adjustments for Retirement and Other Benefit Plans

The IRS has announced the 2012 cost-of-living adjustments for the various dollar limits that apply to benefits under retirement plans and other employee benefit plans.  For the first time since 2008, many of the dollar limits are increasing. 

Retirement Plan Limits.  The following limits apply to retirement plans in 2012: 

• The limit on elective deferrals under 401(k) and 403(b) plans has increased to $17,000 in 2012.
• The annual limit on deferred compensation under eligible 457(b) plans has increased to $17,000 in 2012.
• The limit on extra catch-up contributions by participants age 50 or older remains at $5,500.  The maximum amount of elective deferrals by such participants in 2012 is $22,500.
• The Section 415 limit has increased to $50,000 for 401(k) and other defined contribution plans and to $200,000 for defined benefit plans. 
• The limit on the annual compensation that can be taken into account by qualified plans, has increased to $250,000. 
• The dollar level for becoming a highly compensated employee has increased to $115,000 of pay in 2012 for determinations in 2013.

In addition, the Social Security wage base has increased to $110,100 in 2012.  This is the maximum amount of pay considered FICA wages and is also the maximum "integration level" for plans using "permitted disparity."

Other benefit plan limits have also been announced by the IRS.  For example:

• Parking and Transportation.  In 2012, the limit on the monthly amount that can be excluded from income for qualified parking expenses under a qualified transportation fringe benefit plan has increased to $240.  The aggregate monthly limit for transit passes and/or transportation in a commuter highway vehicle has decreased to $125.
• Health Savings Accounts.  The maximum annual contribution to a health savings account (HSA) will increase in 2012.  For single coverage, the limit is $3,100.  For family coverage, the limit is $6,250.  The additional "catch-up" HSA contribution that can be made by individuals age 55 or older is fixed by statute at $1,000 for 2012.  The minimum deductible required to qualify as a high-deductible health plan (HDHP) in 2012 for purposes of the HSA rules remains at $1,200 for single coverage and $2,400 for family coverage in 2012.  The corresponding limits on HDHP out-of-pocket maximums will increase to $6,050 for single coverage and $12,100 for family coverage in 2011. 
• Adoption Assistance.  The exclusion for employer-provided adoption assistance will decrease to $12,650 per child in 2012.  In 2012, the exclusion begins to phase out for taxpayers with adjusted gross income above $189,710 and is eliminated for taxpayers with adjusted gross income of $229,710 or more.