Internal Revenue
Service (IRS) Communicates 2010 401k Contribution Limits
(January 9th, 2010)
The IRS has announced the cost of living &
inflation adjustments for 2010 for employee sponsored retirement
plans. There is much unchanged from last year, most 2010
defined contribution 401k plan limits will continue at their
2009 levels. For instance, the elective deferral limit for 2010
for 401k plans is $16,500 which is at the same level as it was in
2009. Also, the catch up contribution limit for people 50 years
or over also remains at $5,500 for 2010. These limits are in effect
with changes in the Consumer Price Index (CPI) which tracks &
measures inflation in the United States. Below is a summary of 401k
plan limits in 2009 and 2010.
Maximum Elective Deferral Limits for 2010 and
2009 for 401k Plans
Qualified
Plan Limit
|
2009 |
2010 |
| Elective
Deferral* Maximum for 401k & 403b plans - IRC § 402(g)(1) |
$16,500 |
$16,500 |
| Elective
Deferral Maximum for 457 plans - IRC § 457(e)(15) |
$16,500 |
$16,500 |
| Catch
Up Contribution limits** for 401k, 403b & 457 plans - IRC
§ 414(v)(2)(B)(i) |
$5,500 |
$5,500 |
| Maximum
contributions to a qualified defined contribution plan (including
employee & employer matched contributions) - IRC §
415(c)(1)(A)*** |
$49,000 |
$49,000 |
| Maximum
compensation limit - IRC § 401(a)(17)**** |
$245,000 |
$245,000 |
| Highly
Compensated Employee Salary Threshhold - IRC 414(q)(1)(B) |
$110,000 |
$110,000 |
| Individual
Retirement Account (IRA) Limit |
$5,000 |
$5,000 |
| IRA
Catch Up Limit for 50 years or older Participants - IRC §
219(b)(5)(B)(ii) |
$1,000 |
$1,000 |
* Elective deferrals are the annual contributions
that 401k investors make to their plans on a pre-tax basis.
Pre tax 401k contributions are made from your gross income before
taxes are deducted thus giving you a tax break now. This break is
then taxed as ordinary income upon withdrawal when you turn 65 years
or upon retirement.
** Catch up contribution limits allow
those retirement savers who are 50 years or older to make headway
by contributing more towards their retirement plans. This
allows them to save more money in a shorter period of time and permits
them to make up for the years they have lost.
*** The $49,000 limit for maximum contributions
to a qualified defined contribution plan involves both employee
contributions & employer matched contributions. For
instance, if your employer matches your contribution dollar for
every dollar and you max out your 401k contributions for 2010 with
a $16,500 contribution, then your employer will also contribute
$16,500 on your behalf thus totalling $16,500 + $16,500 = $33,000.
**** The $245,000 compensation limit
for highly compensated employees is the maximum salary that will
be considered to calculate annual contribution limits for such employees.
If an employee earns more than $245,000, then only this
amount will be used to calculate the limits, thus making a cap of
$245,000 for 2010.
|
