Retirement Benefits: What to Expect in 2011

How retirement benefits will change in the new year.

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Seniors won't be getting a boost in their Social Security checks next year, but they will get some new Medicare benefits. Many employers also plan to tweak their retirement account investments to save money on fees and comply with new regulations. Here's a look at how retirement benefits are likely to change in 2011:

401(k) contribution caps stagnant. The savings limits for retirement accounts will stay the same next year because inflation wasn't high enough in 2010 to trigger an increase. Workers can contribute up to $16,500 to 401(k), 403(b), and 457(b) plans, or the federal government's Thrift Savings Plan in 2011. Those age 50 and older can make additional catch-up contributions of another $5,500 next year.

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Higher IRA income limits for couples. Individuals without a retirement plan at work can contribute up to $5,000 to an IRA in 2011, which increases to $6,000 at age 50. However, those who are offered a 401(k) or other retirement account at work can only utilize an IRA until their income reaches a certain amount. Eligibility for this tax-deferred account is phased out for individuals whose modified adjusted gross income is between $56,000 and $66,000 in 2011, the same amount as this year. However, the income phase-out range will increase for married couples filing jointly to $90,000 to $110,000 in 2011, up from $89,000 to $109,000 this year.

Easier access to Roth accounts. Several new rules make it easier to convert some of your savings in traditional tax-deferred retirement accounts to Roth accounts, in which you pre-pay the income tax up front. The Small Business Jobs Act of 2010 permits employees to shift part or all of their 401(k) plan balance to a Roth 401(k) within the same plan. Government 457(b) plans will also be allowed to add Roth accounts to their plans for the first time in 2011. "We think by the end of next year, more than half of 401(k) plans will have Roths," says Pamela Hess, director of retirement research at Aon Hewitt. The IRS also removed the $100,000 income limit in 2010 that previously didn't allow many high-income taxpayers to convert traditional IRAs to Roth IRAs. However, the ability to delay paying tax on a conversion expires at the end of 2010. Beginning in 2011, the income tax due on both Roth IRA and Roth 401(k) conversions must be paid entirely in the year of the transfer.

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Preparations for 401(k) fee disclosure. The Labor Department's new 401(k) fee disclosure rules don't go into effect until 2012. But 401(k) plan sponsors are likely to begin preparing to comply with the new rules in 2011. "Companies are going to look at the funds they have and see if there's a less expensive fund to pick," says Robyn Credico, senior retirement consultant at Towers Watson. Employers will be required to inform workers of all fees deducted from their retirement account by Jan. 1, 2012.

Pension insurance limits stagnant. The Pension Benefit Guaranty Corporation, the government agency that insures private sector pensions, will pay up to $54,000 per year to pension participants whose traditional pension plans terminate in 2011 if they claim their due at age 65. The maximum insurance amount, which is lower for those who claim their payouts before age 65 or elect to have benefits paid to a spouse and higher for those who delay retirement, is unchanged since 2009.

No Social Security increase. Social Security recipients will not receive a cost-of-living increase in 2011 for the second year in a row because there was not enough inflation to cause an increase. This two-year period is the only time seniors have not gotten an annual boost in Social Security payments since automatic increases for inflation began in 1975. Retirees will continue to receive checks for the same amount as last year.

Higher Medicare Part B premiums for some. Most Medicare beneficiaries will not see their premiums increase next year. By law, Part B premiums cannot increase faster than Social Security cost-of-living adjustments. Most existing beneficiaries will continue to pay $96.40 per month if they signed up in 2009 or earlier and $110.50 if they signed up in 2010. However, new enrollees in 2011 who have incomes of $85,000 or less ($170,000 for couples) must pay $115.40 per month. Beneficiaries earning income above that threshold will face even higher premiums. New services will be added to Medicare, including many free preventive care measures such as cancer screenings, beginning on Jan. 1, 2011.