EMPLOYER RETIREMENT PLANS
Participants in employer retirement plans such as 401ks and 403bs will be able to contribute an extra $500 as the limit moves up to $17,000 in 2012. Catch-up contributions, allowed above the $17,000 level for people over age 50, remain at $5,500.
IRA INCOME LIMITS GO UP
Traditional IRA (tax-deductible contributions)
- Joint tax return filers – $92,000 – $112,000 ($173,000 – $183,000 if your employer does not offer a retirement plan)
- Singles and head of household – $58,000 – $68,000
Roth IRA (after-tax contributions)
- Joint tax return filers – $173,000 – $183,000
- Singles and head of household – $110,000 – $125,000
The amount you can contribute to an IRA has not changed – $5,000/year under age 50, $6,000 50 and over.
If your income exceeds the limits to make a deductible Traditional IRA or Roth IRA contribution, there is still a way to move money into the tax-free character of the Roth IRA. Again in 2012, there is no income limit for an IRA conversion, moving money from a Traditional IRA to a Roth IRA.
You can make a non-deductible contribution to a Traditional IRA and convert that money to a Roth, paying no taxes. If you have previously existing money in a Traditional IRA that was deductible at the time of contribution, it can be converted to a Roth IRA. You would owe ordinary income tax on the amount converted but future growth in the Roth IRA would be tax free.
SOCIAL SECURITY WAGE BASE
Earned income subject to tax for Social Security increases from $106,800 to $110,100.
TAX BRACKET CHANGES
Revised income ranges for each bracket are largely a function of inflation over the past year. The figures here bump the beginning income for each bracket upward by 2.35-2.43%.
|Bracket||Married Filing Joint Return||
|10%||$0 – $17,400||$0 – $8,700|
|15%||$17,400 – $70,700||$8,700 – $35,350|
|25%||$70,700 – $142,700||$35,350 – $85,650|
|28%||$142,700 – $217,450||$85,650 – $178,650|
|33%||$217,450 – $388,350||$178,650 – $388,350|
|35%||Over $388,350||Over $388,350|
ESTATE AND GIFT TAXES
The exclusion from federal estate tax is increased from $5 million to $5,120,000
The annual exclusion for gifts remains at $13,000 per recipient from any individual. A couple can therefore give $26,000 to any individual.
The exemption from Alternative Minimum Tax still awaits its adjustment. This may not be settled by year end.
Many other credits, deductions and phase outs – impacting lifetime learning credits, student loan interest, medical savings accounts and standard deductions – have also been tweaked.
~ Brooks, Hughes & Jones, Partners in Wealth Management, Tacoma, WA