Retirement Plan and IRA Limits for 2011!

Many retirement plan and IRA limits are indexed for inflation each year. Some of the key numbers for 2011 are discussed below. Elective deferrals If you're lucky enough to be eligible to participate in a 401(k), 403(b), 457(b), or SAR-SEP plan, you can make elective deferrals of up to $16,500 in 2011, unchanged from 2010. If you're age 50 or older, you also can make a catch-up contribution of up to $5,500 to these plans in 2011 (also unchanged from 2010). (Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.) If your 401(k) or 403(b) plan allows Roth contributions, your total elective contributions, pretax and Roth, can't exceed $16,500 ($22,000 with catch-up contributions). You can split your contribution any way you wish. For example, you can make $9,500 of Roth contributions and $7,000 of pretax 401(k) contributions. It's up to you. If you participate in a SIMPLE IRA or SIMPLE 401(k) plan, you can contribute up to $11,500 in 2011 (unchanged from 2010). If you're age 50 or older, the maximum catch-up contribution to a SIMPLE IRA or SIMPLE 401(k) plan in 2011 is $2,500 (unchanged from 2010). IRA limits remain the same for 2011 The amount you can contribute to a traditional or Roth IRA remains at $5,000 (or 100% of your earned income, if less) for 2011, and the maximum catch-up contribution for those age 50 or older remains at $1,000. You can contribute to an IRA in addition to an employer-sponsored retirement plan. But if you (or your spouse) participate in an employer-sponsored plan, your ability to deduct Contribution limits: 2011 tax year* Plan type Annual dollar limit Catch-up limit 401(k), 403(b), govt. 457(b) plans $16,500 $5,500 SIMPLE plans $11,500 $2,500 Traditional and Roth IRAs $5,000 $1,000 *Contributions can't exceed 100% of your income. Special catch-up rules apply to 403(b) and governmental 457(b) plans. traditional IRA contributions may be limited, depending on your income. Roth contributions are also subject to income limits. Some other key numbers for 2011 For 2011, the maximum amount of compensation your employer can take into account when calculating contributions and benefits in qualified plans (and certain other plans) is $245,000 (unchanged from 2010). The maximum annual benefit you can receive from a defined benefit pension plan is limited to $195,000 in 2011 (unchanged from 2010). And the maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) plan or profit-sharing plan) in 2011 is $49,000 (also unchanged from 2010), plus age-50 catch-up contributions. (This includes both your contributions and your employer's contributions. Special rules apply if your employer sponsors more than one retirement plan.) Income phaseout range for determining deductibility of traditional IRA contributions in 2011 1. Covered by an employer plan Single/head of household $56,000-$66,000 (same for 2010) Married filing jointly $90,000-$110,000 ($89,000-$109,000 for 2010) Married filing separately $0-$10,000 2. Not covered by an employer plan, but filing joint return with a spouse who is covered $169,000-$179,000 ($167,000-$177,000 for 2010) Income phaseout range for determining ability to fund Roth IRA in 2011 Single/head of household $107,000-$122,000 ($105,000-$120,000 for 2010) Married filing jointly $169,000-$179,000 ($167,000-$177,000 for 2010) Married filing separately $0-$10,000

Many retirement plan and IRA limits are indexed for inflation each year. Most of the limits for 2011 are unchanged from 2010. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with a qualified tax advisor. Securities offered through LPL Financial, Member FINRA/SIPC Prepared by Forefield Inc. Copyright 2011.

A new year and a new chapter for retirement!

A New Chapter for Retirement

 

John F. Kennedy once said, “Change is the law of life. And those who look only to the past or present are certain to miss the future.” This is certainly true of preparing for retirement. If we continue to expect that the ways of the past will see us through to our futures, we will be left behind. The methods that helped prepare us for retirement are quickly disappearing, and we must start using others.

 

Today’s companies are rewriting the retirement rules for working Americans. Traditional pension plans, which gained prominence in the 20th century, are rapidly disappearing because of the high costs involved in funding them. Some corporations are defaulting on their plans, and an increasing number of companies have underfunded or at-risk plans.

 

To help protect employees with corporate pensions, the federal government has enacted laws requiring employers to meet a 100% funding target for their defined-benefit plans. Companies that sponsor pension plans are also required to pay higher insurance premiums to the Pension Benefit Guaranty Corporation (PBGC), which was created by Congress in 1974 to help protect American workers from the risk of pension default.  Premiums have increased because the PBGC itself is facing a deficit as a result of more companies defaulting on their pension plans.

 

Because of these costly requirements, it is becoming less and less attractive for companies to provide traditional pensions to retirees. Employers with underfunded plans may simply choose to eliminate them, and even companies with healthy plans may decide that defined-benefit plans are not worth the cost. As a result, it is likely that more companies will offer defined-contribution plans like the 401(k) to attract new employees and to help employees fund their own retirements.

 

Thus, it is important to be aware that you may have less help from your employer and will probably have to rely more on your own savings and investments to fund your retirement.

 

The government has tried to help by raising contribution limits to most employer-sponsored retirement plans. You can contribute money to these plans on a pre-tax basis. Your contributions and any earnings accumulate on a tax-deferred basis. Of course, remember that distributions from most employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% federal income tax penalty.

 

A number of companies are taking steps to help workers fund retirement. Many have instituted automatic-enrollment in their defined-contribution plans to encourage more employees to participate. Some are enhancing the benefits of their plans by increasing the amount they contribute to employee accounts and/or enhancing matching contributions.

 

Many companies that still have traditional pension plans should be able to pay their promised benefits. But in light of recent trends, it would be wise to consider all possible sources of retirement income when reviewing your retirement strategy. With the changing retirement landscape, there may be no better time than now to size up your current situation. Your company-sponsored retirement plan will be just one piece of your retirement funding pie.  

 

This material was written and prepared by Emerald.
© 2010 Emerald