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What's New for Taxes in 2012?

Expanded 401(k) contributions, other changes may reduce your taxes

  • Catch-up limit. The catch-up contribution limit for people 50 and older stays the same at $5,500. The catch-up contribution is intended to give 50-plus participants an added boost to their retirement nest eggs.
  • Roth IRAs. The amount you can put into a Roth IRA as a regular contribution is reduced or eliminated if your income goes above certain levels. In an Oct. 20 announcement on pension plan limitations for 2012, the IRS said that the income phase-out for married couples filing jointly will rise to the range of $173,000 to $183,000, up from $169,000 to $179,000 in 2011.

    According to the nonprofit Employee Benefit Research Institute, only 33 percent of workers ages 21 to 64 took advantage of 401(k) plans in 2009, the most recent year for which figures are available.

    And, according to the institute, only 9 percent of people who do have a 401(k) contributed the maximum dollar amount to their plans in 2005, the most recent year for which that data is available.
  • Federal estate tax exclusion. The federal estate tax exclusion will rise to $5.12 million in 2012, up from $5 million in 2011. However the annual gift tax exclusion will remain at $13,000.
  • EITC. The maximum earned income tax credit (EITC) will increase to $5,891, up from $5,751 in 2011. The earned income tax credit is a refundable federal income tax credit for low- to moderate-income working individuals and families. The allowable credit varies by family size and other factors.

Also of interest: Get more tax tips. >>

William J. Lynott is an author and freelance writer who specializes in business and financial issues.

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