2012 IRS Retirement Plan Limits

I hope you had a very Happy Thanksgiving. I traveled to Nebraska last week to attend a funeral for my oldest brother on Friday November 25th which impacted my ability to write last weekend. One thing from this experience is that one of the most important things you can do is have a positive impact on the lives of others.

The topic for this week is the IRS limits during 2012 for Retirement plans. A weekly recap from Vanguard is the first section. The last section is words of wisdom from Bill Gates at a high school commencement address that you may find interesting. I especially like Rule 11.

Vanguard

Improvements in U.S. employment and manufacturing suggest the nation's economic recovery has regained traction. However, risks abound. The nation's housing and employment situation remain weak. A slower global economy and turmoil in the Eurozone pose a challenge to any recovery. For the week ended December 2, the S&P 500 Index rose 7.4% to 1,244 (for a year-to-date total return—including price change plus dividends—of about 0.9%). The yield on the 10-year U.S. Treasury note rose 8 basis points to 2.05% (for a year-to-date drop of 125 basis points).

2012 Retirement Plan Limits

It is my personal view that it is important for all of us to contribute to a retirement plan on a regular basis. If the US Government continues with the 2% reductionn in payroll taxes for 2012, it would be prudent to put this savings into a retirement account. Below are the IRS limits for next year:

•401(k) and 403(b) elective deferrals were increased to $17,000, up from $16,500 last year; the catch-up elective deferral limit remained at $5,500

•The taxable wage base for social security rose to $110,100, up from $108,600 last year

•Defined Benefit plan benefit limits moved higher to $200,000, up from $195,000 last year

•Annual contribution plan limits rose to $50,000, up from $49,000 last year

•Annual compensation limits were raised to $250,000, up from $245,000 last year

•The threshold for highly compensated employees moved higher to $115,000, up from $110,000 last year

•The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011; for married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000; for an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000

•The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011; for singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000; for a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000

•The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250

Bill Gates Commencement Address

Bill Gates, Chairman of Microsoft, gave a Commencement address at a high school. He gave the students eleven rules to remember as they go out into the future.

Rule 1 - Life is not fair - get used to it!

Rule 2 - The world doesn't care about your self-esteem. The world will expect you to accomplish something BE-FORE you feel good about yourself.

Rule 3 - You will NOT make $60,000 a year right out of high school. You won't be a vice-president with a car phone until you earn both.

Rule 4 - If you think your teacher is tough, wait until you get a boss.

Rule 5 - Flipping burgers is not beneath your dignity. Your grandparents had a different word for burger flip-ping - they called it opportunity.

Rule 6 - If you mess up, it's not your parents' fault, so don't whine about your mistakes, learn from them.

Rule 7 - Before you were born, your parents weren't as boring as they are now. They got that way from paying your bills, cleaning your clothes and listening to you talk about how cool you thought you were. So before you save the rain forest from the parasites of your parent's generation, try delousing the closet in your own room.

Rule 8 - Your school may have done away with winners and losers, but life HAS NOT. In some schools, they have abolished failing grades and they'll give you as MANY TIMES as you want to get the right answer. This doesn't bear the slightest resemblance to ANYTHING in real life.

Rule 9 - Life is not divided into semesters. You don't get summers off and very few employers are interested in helping you FIND YOURSELF. Do that on your own time.

Rule - 10 Television is NOT real life. In real life, people actually have to leave the coffee shop and go to jobs.

Rule - 11 Be nice to nerds. Chances are you'll end up working for one.