Employee Benefits-IRS Talks About Maximizing An Employee’s Salary Deferrals in 2012

In Retirement News for Employers (Fall 2011), the Internal Revenue Service (“IRS”) talks about how an employee can maximize his or her salary deferrals in 2012. Here is what the IRS says:

Does your employer’s retirement plan allow you to make contributions from your salary? If so, you are likely to be asked to complete a salary deferral form (salary reduction agreement) now to indicate the amount you want to contribute to the plan from your salary in 2012.

To maximize your retirement savings, contribute as much as possible to the plan up to the 2012 allowed limits of: (1) $17,000 to 401(k) or 403(b) plans or (2) $11,500 to SIMPLE plans. If you are 50 or older by the end of 2012, your plan may allow you to make additional (catch-up) contributions of (a) $5,500 to 401(k) or 403(b) plans or (b) $2,500 to SIMPLE plans.

Remember, in addition to saving more for your retirement, there are other benefits of making salary deferral contributions to the plan. For example:

• you may reduce your taxable income by making pre-tax contributions;

• your employer may match your contributions to the plan (for example, your employer may contribute 50 cents for each dollar that you contribute to the plan, up to a certain amount); and
• you may qualify for the retirement savings contributions credit of up to $1,000 (up to $2,000 if filing jointly) for contributing to the plan and this credit may reduce your federal income tax liability.

If you decide to contribute less than the maximum allowed at this time, you may be able to increase your contributions by completing a new salary deferral form during 2012. Contact your employer for details about the retirement plan, including how much you can contribute from your salary, whether the employer also makes contributions on your behalf and whether you can change the amount of your contributions to the plan in 2012.