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A Quick Look at Retirement Plans

Individual retirement arrangements (IRAs) were introduced in 1974 with the enactment of the Employee Retirement Income Security Act (ERISA). In that year, taxpayers could contribute up to $1,500 a year and reduce their taxable income by the amount of their contributions. Initially, ERISA restricted IRAs to workers who were not covered by a qualified employment-based retirement plan. In 1981, the Economic Recovery Tax Act (ERTA) allowed all taxpayers under the age of 70½ to contribute to an IRA, regardless of their coverage under a qualified plan. It also raised the maximum annual contribution to $2,000 and allowed participants to contribute $250 on behalf of a nonworking spouse.

The Tax Reform Act of 1986 phased out the deduction for IRA contributions among higher-earning workers who are covered by an employment-based retirement plan. However, those earning above the amount that allowed deductible contributions could still make nondeductible contributions to their IRA. The maximum amount allowed as an IRA contribution was $1500 from 1975 to 1981, $2000 from 1982 to 2001, $3000 from 2002 to 2004, $4000 from 2004 to 2007, and $5000 from 2008 to 2010. Beginning in 2002, those over 50 could make an additional contribution called a "Catch-up Contribution."

The 2011 IRA contribution Limit is $5,000 if you are under 50 and $6,000 if you are over 50. The maximum contribution you can make to a traditional IRA for 2012 remains unchanged from 2011. The 2012 IRA contribution Limit is $5,000 if you are under 50 and $6,000 if you are over 50. [Read More]



Social Security

The IRS Social Security Benefits Planner is located at http://www.socialsecurity.gov/retire2/. This planner provides detailed information about your Social Security retirement benefits under current law. If you are looking for information, you can find your retirement age, estimate your life expectancy, estimate your retirement benefits and use our other benefit calculators to test different retirement ages or future earnings amounts, apply for retirement benefits. If you are close to age 65, you can find out how to apply for just Medicare. You may need to sign up for Medicare close to your 65th birthday, even if you will not be retired by that time.

In addition to the Social Security Website the automated telephone services are available by calling 1-800-772-1213 between 7:00am and 7:00pm Monday through Friday.

In 2011, Wages up to $106,800 were subject to social security tax and the maximum social security withholding would be $4485.60. Employers withheld Social Security taxes (4.2 percent) from employee's wages up to $106,800 and withhold Medicare tax (1.45 percent) on all wages. There is no limit on the earnings subject to the Medicare tax. The tax rate is currently .0145%.

For 2012, wages up to $110,100 will be subject to social security tax and the maximum social security withholding will be $6826.20. That's a 3.1% hike over the 2011 wage base of $106,800. There is no limit on the earnings subject to the Medicare tax. The tax rate is currently .0145%.

There was no Cost of Living Increase in 2011. Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase 3.6 percent in 2012. The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011. According to Social Security officials, the average monthly check for the elderly will increase $43 to $1,229. For the disabled, it will rise $39 to $1,111. [Read More]
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