IRS will keep 401(k) contribution limits steady for next year

Contribution limits for 401(k) plans will remain unchanged next year, the Internal Revenue Service announced today. Leaving the limits at this year's levels means that 401(k) participants under the age of 50 could contribute a maximum of $16,500; participants aged 50 and above would be able to contribute $22,000. The announcement quieted concerns voiced in the retirement industry earlier this year that contribution limits to 401(k) plans would actually be lowered next year. Because the formula used by the IRS to set contribution levels is based on the cost of living index, the recession could have forced a reduction in contributions by $500 next year. While the cost-of-living index for the quarter ended Sept. 30 was less than the cost-of-living index for the same quarter in 2008, a decline in the index “cannot result in a reduced limitation” under the Internal Revenue Code, the tax collection agency said in a release. Bill McClain, a principal with human resource consulting firm Mercer, is not surprised that the IRS left the contribution levels alone. “There's a lot of political pressure not to lower the limits following such a down market,” he said. “There's a lot of concern out there about retirement adequacy, especially people that are close to retirement,” he said. Many industry groups are encouraging people to contribute more, and employers are concerned because workers are delaying plans to retire, he added.