2012 Retirement Plan Cost-of-Living Increases

The Internal Revenue Code sets dollar limitations on benefits and contributions applicable to qualified retirement plans and IRAs. Code Sec. 415 provides for incremental adjustments to these limits based on annual cost-of-living (COLA) increases measured by the US Consumer Price Index (CPI).

On October 20, 2011 the IRS announced COLA adjustments applicable to dollar limitations for pension plans and other retirement-related items for the 2012 tax year. Many limitations will change since the CPI increase met the statutory threshold that triggers their upward adjustment. Listed below are a few of the items that are scheduled to increase in 2012.

IRA Deduction Phase-Out (for Modified Adjustment Gross Income starting at):

for individuals covered by an employer plan:
-$92,000 for joint filers (up from $90,000 in 2011)
-$58,000 for single/head of household filer (up from $56,000 in 2011)

for individuals not covered by an employer plan but spouse is covered:
-$173,000 (up from $169,000 in 2011)

Defined Contribution Plan Annual Additions Limitation:
-$50,000 (up from $49,000 in 2011)

Defined Contribution Plan Maximum Compensation (including SEPs):
-$250,000 (up from $245,000 in 2011)

Elective Salary Deferrals for 401(k) & 403(b) Plans:
-$17,000 (up from $16,500 in 2011)

CLICK HERE to read the entire article on all 2012 retirement plan limitations.

Private Letter Ruling 201146024

A taxpayer we will call “Meredith” received a distribution from her IRA. Since she suffers from dementia, her daughter has power of attorney on her behalf. She withdrew an amount of money and intended to use it to pay for an assisted living facility for her mother. The daughter asserted that she intended to later use the proceeds from the sale of her mother’s home to replace the distribution and rollover the funds into another IRA within the prescribed 60-day period.

However, as we are all well aware in this housing market, the daughter had a difficult time selling the residence, which kept her from accomplishing the rollover within the 60-day window. She requested a private letter ruling allowing her more time to complete the rollover.

The IRS declined her request without elaborating further.

LESSON TO LEARN:
There is no true need to elaborate. This message is a reminder that IRS will usually not grant waivers (even in dire circumstances) of the 60-day rollover rule if the funds are used while they are out of the IRA.