As the economy stumbles through recovery and more people worry about meeting basic expenses, here’s something you may not hear much about: The IRS says you can contribute an extra $500 to your 401(k).
Contributions to the tax-deferred retirement plans will rise from $16,500 to $17,000 next year as the IRS adjusts those amounts to reflect increases in the cost of living. This is the first increase in the rate since 2009.
Participants who reach the age of 50 before the end of 2012 can withhold an additional $5,500 from their paychecks for a total contribution of $22,500. The catch-up amount has remained the same since 2009.
The AP reports that in 2009 some 33 percent of workers ages 21-64 used 401(k) plans.
The IRS also announced new dollar amounts for a variety of tax provisions that affect 2012 returns filed in 2013:
- The value of each personal and dependent exemption is $3,800, up $100 from 2011.
- The new standard deduction is $11,900 for married couples filing a joint return, up $300; $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. The IRS says nearly two out of three taxpayers take the standard deduction.
- Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.
The question now is whether participants worried about jobs and inflation will have the cash to fund their futures.