IRS raises 401(k) contribution limit to $17,000

NEW YORK (CNNMoney) -- You'll be able to contribute more tax-free money to your 401(k) next year, the IRS announced Thursday.

The contribution limit for employees participating in pension plans -- including 401(k)s, 403(b)s, most 457 plans and the federal government's Thrift Savings Plan will be $17,000 for tax year 2012.

That's $500 higher than the $16,500 limit this year, and marks the first increase since 2009, the IRS said. The reason? Rising inflation.

And pension contribution limits aren't the only amounts the agency has had to boost due to the rising cost of living.

Starting in 2012, taxpayers will also be allowed to claim personal exemptions of $3,800 -- up $100 from 2011, the IRS also announced Thursday.

The new standard deduction will be raised by $300 for married couples, by $150 for singles and by $200 for heads of household. Tax bracket thresholds will also be higher for 2012.

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The maximum Earned Income Tax Credit is $5,891 for 2012, up from $5,751 in 2011. And the qualifying income limit has been boosted as well -- to $50,270 in 2012, from $49,078 this year. Several other tax benefits -- including the foreign income deduction and the annual deductible amounts for Medical Savings Accounts -- will also go up.

Other benefits, including the additional standard deduction for blind people and senior citizens, remain unchanged.

Many senior citizens will be helped in another way next year, however. Social Security recipients will receive a cost of living adjustment of 3.6% starting in January -- the first raise in three years.