IRS may lower 401(k) contribution limit

Jeremy Hobson Sep 1, 2009
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IRS may lower 401(k) contribution limit

Jeremy Hobson Sep 1, 2009
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TEXT OF STORY

Kai Ryssdal: If you’ve been keeping track, you know inflation’s not that big a deal right now. And ordinarily that’s a good thing. But when the Consumer Price Index is next reported you might want to listen up. Because it could affect how much you can put into your 401(k). Marketplace’s Jeremy Hobson reports.


JEREMY HOBSON: Right now, you can stash up to $16,500 a year, pre-tax, into your retirement account. If you’re 50 or older, you can put in even more — $22,000 a year.

The limits are set by the IRS, based on the level of inflation. But inflation has been negative since March.

And Bill McClain of the consulting firm Mercer says.

BILL MCCLAIN: If the inflation pattern that we’ve seen during the year holds through September, then the cap on deferrals may actually go down next year for the first time.

Now Mercer says less than 10 percent of those who contribute to a 401(k) plan give as much as they’re allowed to give. And most of those who do are people who make a lot of money.

But others are ordinary middle-class folks trying to make up for losses racked up over the past year.

MCCLAIN: Many people are working hard to rebuild their accounts, especially those that are closer to retirement, and those are the people that are more likely to be contributing up to the limit.

With warnings like that, you’d think retirement advocacy groups would be up in arms.

But David Certner, legislative policy director at AARP, says people saving for retirement have more pressing concerns.

DAVID CERTNER: I think the big issue for most people right now is really they’re concerned about their retirement security. That means being able to save as much as possible, but for a good number of people, it really means making sure they can hold onto the job they have or being able to find employment as well.

The IRS wouldn’t speculate on whether the limits would drop come October. But a spokesman did say the IRS is aware of the issue and is reviewing the current law.

In New York, I’m Jeremy Hobson for Marketplace.

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