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William Perez

2012 Limits for 401(k), 403(b) and 457 Plans for 2012

By October 25, 2011

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Individual taxpayers will be able to set aside up to $17,000 in various  employer-sponsored retirement plans for the year 2012. This $17,000 limit represents the maximum amount that a person can save as an elective salary deferral inside a section 401(k), 403(b) or 457 plan. People age 50 years old or older can save an additional $5,500 as a designated "catch up" contribution.

The total amount that can be contributed by both employees and their employers for 2012 is set at $50,000.

Retirement plan limitations for 401(k) and similar plans are updated annually by the IRS for various cost-of-living adjustments, a process also called inflation-indexing. The 2012 adjustments were announced by the IRS in IR-2011-103, and the IRS has posted a three-year chart summarizing various retirement plan limitations on the IRS.gov Web site.

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January 12, 2012 at 1:13 am
(1) deregulate_this says:

So, 401ks came out the end of the decade exactly as they started with no gain. What a giant scam.
Being charged 1% per year means you lose 28% of your fund’s value by the time you retire.

January 12, 2012 at 9:32 am
(2) Believer says:

Except that you saved 20% on taxes each year and, if you invested wisely, should have made a nice return with dividends. While the value of the fund might not have gone up much, your position should have increased, plus you didn’t pay taxes on the money.

January 14, 2012 at 9:05 am
(3) Jim Sutherland says:

What about the match? I get 6% dollar for dollar. That 100% return on my money far exceeds any rate of return in any investment.

January 17, 2012 at 6:57 pm
(4) 457 Investor says:

Agreed, if I followed #1′s advice I would never have been able to retire this year. Advice: Start young, diversify your holdings, reduce exposures as you age, retire comfortably. PS: Ignore the naysayers like #1 who will likely never retire…

February 14, 2012 at 2:29 am
(5) Sean says:

#1 is not very smart. Thanks to 401K, matching company contribution, dividend yields, and tax free bonds I just passed $1 million in assets at age 47…and I only started really investing 14 years ago when I accepted my current job. If all goes as planned my wife and I will hopefully retire 10 years early with $2.5-$3.0 million, and that’s assuming a conservative 5% avg return per year on our investments. If I had been able to start saving/investing another 10 years earlier I might have been able to retire 15 years early. Don’t listen to #1…he sounds bitter.

March 5, 2012 at 1:45 pm
(6) Rob O says:

Ha! I was going to type up a response to #1, I don’t think that’s an accurate representation. But #2-#5 already said what I was going to say. Especially #2: 10 years of dividends re-invested at low prices means you should have many many more shares of the same investments. That is incredibly powerful.
#1 sounds to me like he doesnt quite understand the power an employee has with a 401k.

March 28, 2012 at 8:39 pm
(7) Rick says:

Sean: that’s pretty impressive. If my calculations are correct, and I had to make some SWAG assumptions, you’ve been averaging 17% returns (or more) each year on your investments to go from nearly $0 to $1mil in 14 years. (I assumed you maxed 401k contribution each year and received a 5% company match starting at $100k in 1998 receiving a 5% raise each year). Seems pretty unbelievable.

That said, I’ve been maxing my 401k contribution for many years now and it is a great investment plan. My only complaint is that my employer does not offer the Roth 401k which I would really prefer right now.

March 30, 2012 at 11:22 am
(8) a better way says:

I only contribute to my 401k to the extent it is matched.

April 6, 2012 at 6:48 pm
(9) Kurt says:

Sean: well done, sir, and congratulations to you and your wife. Although you don’t say, I am assuming that both of you were maxing out your 401K contributions. Passing the one million mark in only 14 years, especially considering that those 14 years included the market meltdowns of ’01 and ’08 , indicates either very astute fund selection, or incredible luck.

April 11, 2012 at 9:34 pm
(10) Ajay says:

I just dont see how Sean did manage 1million in 14 years of 401k. Last decade and more has been a total wash(look at mutual funds and indices) with high volatility. If you got full 6% match and you maxed out 100% on 401, you cant even come close to 1million (even if you assume he is including his wife 401k as well).

401k is still good but majority is under water mainly because of market melt down. Most have to change their retirement plans as their 401k assets have shrunk.

April 12, 2012 at 11:24 am
(11) Tom says:

the only plausible explanation for Sean’s performance is if he invested heavily in his company stock(Apple?)

April 16, 2012 at 11:47 am
(12) LOL says:

deregulate_this is a moron…

April 16, 2012 at 11:56 am
(13) LOL says:

@ #5—Great job on saving! My only question is why would you choose to invest in tax free bonds in a retirement account (401k or roth IRA)? 401(k)s generally dont offer bonds funds with tax advantages because it just doesn’t make sense. You’re already receiving tax free growth on all of your investements inside a company 401(k) plan. If in fact you do have tax free bond funds in your company 401(k), I would talk to your HR department as the person or company who sold the 401(k) to your employer has failed to offer a proper service.

April 17, 2012 at 1:57 am
(14) Option Guy says:

A 401k plan is a great way to go AS LONG AS THERE IS A MATCH INVOLVED of 25% or greater. The True problem of the 401k plan is the back end tax factor. You will be taxed on every dollar that comes out of the fund and with the rising likelihood of higher tax rates that could take years out of your retirement funds. We use Indexed Universal Life insurance to supplement our client’s diversification levels. The product is virtually risk free and the distributions can come out tax free. If you are doing well in life, tax free is an incredibly powerful weapon.

April 17, 2012 at 2:00 am
(15) Option Guy says:

And LOL………nothing grows in a 401k Tax Free. Tax deferred………….not tax free. Huge difference.

April 21, 2012 at 12:55 pm
(16) slowandsteady says:


Nice job on saving $1MM by age 47. I’m wondering how you did it though if you really have only been investing for 14 years.

Just for arguments sake, let’s say you invested the maximum tax-deferred amount. The limit starting around 2000 was 10,500 and it is now 17,000. Let’s say that the average amount you could invest tax free was 15K-this errors on the side of maximizing your balance.
Let’s also say that your employer matched that 15K 100%. Most employers only match up to 6% of your income. Maybe that is your case but that means you make $250K/year qualifying you as an exceptional high wage earner compared to the average employee saving into their 401K or your employer is exceptional in the matching they provide.

So using these assumptions, to get to 1MM in 14 years, you had an average return of 11% in the market. Not impossible but, again, very exceptional compared to the average investor.

I’m not saying you didn’t do it or that investing in a 401K is a waste of time. Quite the contrary on the latter. I’m just pointing out that your achievement is rather exceptional and not one the average 401K investor should expect.

April 21, 2012 at 12:59 pm
(17) slowandsteady says:

Year Beginning Bal Your Cont Emp. Match Annual RR Annual Return End Bal

1 1999 - 15,000 15,000 11% 3,300 33,300
2 2000 33,300 15,000 15,000 11% 6,963 70,263
3 2001 70,263 15,000 15,000 11% 11,029 111,292
4 2002 111,292 15,000 15,000 11% 15,542 156,834
5 2003 156,834 15,000 15,000 11% 20,552 207,386
6 2004 207,386 15,000 15,000 11% 26,112 263,498
7 2005 263,498 15,000 15,000 11% 32,285 325,783
8 2006 325,783 15,000 15,000 11% 39,136 394,919
9 2007 394,919 15,000 15,000 11% 46,741 471,660
10 2008 471,660 15,000 15,000 11% 55,183 556,843
11 2009 556,843 15,000 15,000 11% 64,553 651,396
12 2010 651,396 15,000 15,000 11% 74,954 756,349
13 2011 756,349 15,000 15,000 11% 86,498 872,848
14 2012 872,848 15,000 15,000 11% 99,313 1,002,161
15 2013 1,002,161 15,000 15,000 11% 113,538 1,145,698

April 30, 2012 at 9:25 am
(18) Mac says:

#1 very short term look at a long term investment. Invest in index funds, and check them out… how many didn’t gain considerably over a thirty year term? answer, none, over thirty years or more they all go up, and by A LOT!!! 401k is a long term buy, not 10year return… more like 40-50. Do your research before you go giving investment advice. Very irresponsible.

May 25, 2012 at 11:55 am
(19) chener says:

Sean mentioned $1M in “assets”, not 401k value.

June 6, 2012 at 12:45 pm
(20) Innerlaner says:

I’m going to give Sean the benefit of the doubt and say, “assets” implies other investment other than his 401K and “only started really investing 14 years ago” implies he increased his 401K investments during those years.

I had $42K+ change in my 401K by age 29 (I remember getting a check for that amount to roll over to my new employer). During the 7.5 years at my current employer, I accumulated an additional $127K+change in my 401K. So, I “only started really investing 7.5 years ago”. My total assets total over $350K.

June 9, 2012 at 6:24 pm
(21) A R P says:

The max amounts saved can be maximized.

401K $17,000 if over 50 years old add $5500 roth
457 $17,000 if over 50 years old add $5500
my retirement DC plan is 12k plus 12K match
IRA $5000 if over 50 years old add $1,000
for a total annual savings $51,000.00

Im 53 retiring in 4 months combined net worth 3.5 million maxed out since inception on all plans last two years with a 50 RE expouser.

Its a bueatiful thing

July 25, 2012 at 7:11 pm
(22) Jason says:

He says he “AND HIS WIFE”. His wife may also be maxing out her 401k.


July 29, 2012 at 4:15 pm
(23) SavingsLover says:

If you’re lucky enough to have a second option for saving, you can accrue savings quickly. Some companies offer a deferred compensation plan whereby eligible emps can put away far more than the 401k limits. My wife and I live way below our means (driving 9 year old and 13 year old cars, for example) and have been able to sock away over $160k in 3 years. Next year I’ll add some stock grants I was fortunate to receive into the mix and as a result will save over half of my income for our retirement. Hopefully I get more grants every year to put away even more going forward.

August 22, 2012 at 5:42 pm
(24) PassingBy says:

SlowandSteady : Your calculation is flawed. Year one start at 0. End of year one the account has 30000. With 3300 return the account would has to have 30000 at the beginning of year one. Same flaw carried through out calculation. Year two did not start with 63000.

Someone is doing Voodoo math.

September 12, 2012 at 5:05 pm
(25) Spud says:

This is definitely possible. Sean says all assets, which can include wife’s assets plus equity in their home(s).

I can vouch that I’m actually around parity with Sean, over the same time period. My wife started saving earlier than I did, but since I went to grad school and took out loans, I actually started with negative net worth 13 years ago.

We’re close to $1.3m across all assets now. And 401k matching and growth was a big (but not only) contributor to that. Part of the beauty of the 401k is once you set it up, it’s auto-discipline.

So, it’s definitely possible, by my math and personal experience.

September 13, 2012 at 1:20 pm
(26) Almost ready says:

What if he invested in non-equities? The meltdown would have had little effect.

September 24, 2012 at 4:42 pm
(27) wonder ing says:

New to this. Which is it, 17 k or 50 k? Having money taken out and am wondering what it the limit.

September 24, 2012 at 6:28 pm
(28) William Perez says:

For 2012, the maximum amount that employees can save through their 401(k) or 403(b) plan is $17,000 (these are often referred to as the employee’s contributions or salary deferrals). Employers are permitted to contribute as well (called the employer’s contribution or matching funds). The total amount (employee plus employer) of contributions cannot exceed $50,000 for the year.

October 7, 2012 at 11:03 am
(29) PasserBy says:

I came across this thread as a passerby. I’m an actuary and immediately questioned the rationale of #1 &#5.
However some of the responses just show this is a shark tank lol. throw some more chumm in the water. Someone make another false statement fast.

October 11, 2012 at 1:36 pm
(30) Beliver-47 says:

A different view…

I I invested the max each year and lost half each year, I would still retire with more than #1…(Most probably)

November 7, 2012 at 2:52 pm
(31) Mike_LV says:

I have been saving ever since I was a teenager (bought my first stocks when I hit 21.) Unfortunately upon the advice of my agent, financial planner, and the bank I bought my first house a few years back and watched my savings disappear. Then again I didn’t buy more than I could afford to lose.

I started my 401(k) the very first day I was eligible at my employer (took a year back then). I am glad I did.

If I hadn’t been investing in 401(k), IRAs (before traditional and now Roth) plus a bit more on the side (bought Apple with it was $7 a share) I would be living check to check today. I have managed to rebuild most of my savings.

While not in millionaire land like many others in the 40-50 bracket here I’m almost caught up to where I want to be when I retire. If the economy performs on even par with the century average, I will be better than fine. If it performs below average I will still be okay. If it tanks…well then I’m no worse off then if I had not done anything.

The important rule I take to heart about retirement savings is START. You cannot do anything about yesterday, last year, last decade. You can do something about today. I do not agree with the argument on taxing your retirement income as a reason not to save. What’s wrong with *having* an income when you retire?

Oh and as for Universal Life…do the math yourself and you’ll see why it is probably not a good idea.

January 25, 2013 at 2:55 pm
(32) Cranky says:

It’s also possible he contributed *more* than the tax-deferred limit. That limit is only on the tax-deferred part, not on what you can set aside. So it’s perfectly possible to have reached $1M in 14 years even with only like a 6% rate of return. $50K a year will do it. And $50K is not that hard to set aside if they’re both making beyond $100K and didn’t buy into the biggest house they could afford, and skipped kids.

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