The IRS and Social Security administration have announced the limits that apply to retirement plans for 2011. While most of the limits remain unchanged from the 2010 limits, you can still continue to fund your retirement nest egg up to these allowed amounts.

Tutorial: Retirement Planning

In this article, we'll break down the recent plan changes, explain some retirement plan concepts and show you what you need to know to plan for your retirement properly.

Retirement Plan Limits for 2011
The following charts showcase the highlights of the 2011 retirement plan announcements. (For related reading, check out 2010: The Year To Convert Your IRA.)

Type 2011 Limits 2010 Limits
Traditional and Roth IRA contribution $5,000 $5,000
Traditional and Roth IRA catch-up contribution $1,000 $1,000
SIMPLE IRA and SIMPLE 401(k) Salary deferral $11,500 $11,500
SIMPLE IRA and SIMPLE 401(k) catch-up $2,500 $2,500
401(k) , 403(b), Federal Government\'s Thrift Savings Plan, SARSEP salary deferral contribution $16,500 $16,500
401(k) , 403(b), Federal Government\'s Thrift Savings Plan, SARSEP catch-up $5,500 $5,500
457(b) salary deferral contribution $16,500 $16,500
457(b) catch-up contribution $5,500 $5,500
SEP Compensation eligibility $550 $550

Saver\'s tax credit

Married filing jointly 50% credit $-0- to $34,000 $-0- to $33,500
20% credit $34,000-$36,500 $33,500-$36,000
10% credit $36,500-$56,500 $36,000-$55,500
Head of household 50% credit $-0- to $25,500 $-0- to $25,125
20% credit $25,500 -$27,375 $25,125-$27,000
10% credit $27,375-$42,385 $27,000-$41,625
Other categories 50% credit $-0- to $17,000 $-0- to $16,750
20% credit $17,000 -$18,250 $16,750-$18,000
10% credit $18,250-$28,250 $18,000-$27,750
Roth IRA eligibility compensation Married filing jointly 100% $169,000 or less $167,000 or less
Partial $169,000 -$179,000 $167,000 - $177,000
None $179,000 + $177,000 +
Married filing separately Partial Less than $10,000 Less than $10,000
None $10,000 or more $10,000 or more
Single 100% $107,000 or less $105,000 or less
Partial $107,000- $122,000 $105,000- $120,000
None $122,000 or more $120,000 or more
IRA deductibility compensation Married filing jointly and active 100% $90,000 or less $89,000 or less
Partial $90,000- $110,000 $89,000- $109,000
None $110,000 or more $109,000 or more
Married filing jointly. Not active, butspouse is active 100% $169,000 or less $167,000 or less
Partial $169,000 - $179,000 $167,000-$177,000
None $179,000 or more $177,000 or more
Married filing separately Partial Less than $10,000 Less than $10,000
None $10,000 or more $10,000 or more

Single

100% $56,000 or less $56,000 or less
Partial $56,000 - $66,000 $56,000 - $66,000
None $66,000 or more $66,000 or more
Annual addition/contribution limit under a defined contribution plan or SEP IRA $49,000 $49,000
Annual benefit under a defined benefit plan $195,000 $195,000
Compensation cap $245,000 $245,000
Key Employee definition $160,000 $160,000
Highly compensated employee definition $110,000 $110,000
Social Security Wage base $106,800 $106,800

Other Changes

  • Limited Distribution Period for ESOPs
    The dollar amount, under the limited distribution period for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period, remains at $985,000; the dollar amount used to determine the lengthening of the five-year distribution period remains at $195,000.
  • Compensation Cap for Governmental Plans
    The annual compensation cap for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation cap to be taken into account, remains at $360,000.

Reminders

  • The salary deferral limit applies across all 401(k), 403(b), the federal government's Thrift Savings Plan, SARSEP and SIMPLE plans. Therefore, regardless of the number of plans in which you participate, you salary deferral contribution cannot be more than $16,500 for the year. Additionally, your catch-up contribution cannot be more than $5,000 for the year.
  • Contributions to 457(b) plans are not aggregated with contributions to 401(k), 403(b), the federal government's Thrift Savings Plan, SARSEP and SIMPLE plans. For instance, if you participate in a 457(b) plan and a 403(b) plan, you could make salary deferral contributions of $16,500 catch-ups to each plan, bringing the total to $33,000 + catch-up of $11,000. (For more insight on 457 plans, check out The 4-1-1 On 457 Plans.)
  • The annual addition limit of $49,000 does not include catch-up contributions. Therefore, if you participate in a plan with a salary deferral feature, your contribution for the year can be up to $49,000 + catch-up contribution of $5,500.
  • If you contribute to more than one traditional or Roth IRA, or to both a traditional and Roth IRA, your contribution to all your IRAs cannot exceed $5,000 + $1,000 catch-up contribution for the year.

Conclusion
Be aware of these limitations when you meet with your financial planner to review your retirement planning for the year. This is especially important if you participate in multiple employer-sponsored plans or contribute to more than one traditional/Roth IRA. Contributions in excess of these limits can result in excess contributions, which are subject to excise tax unless they are corrected in time.

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