Deflation may push down 401k contribution limits
Many parts of the tax code are indexed for inflation, and that usually means an annual increase in such figures as the amount you’re allowed to contribute to a 401k. Next year, however, the 401k limit may go down instead of up. Forbes, citing an estimate from consulting firm Mercer, says the limit may fall to $16,000 next year from $16,500 this year.
The effect of deflation on the tax code isn’t clear. Federal law protects some things, such as Social Security benefits, from negative inflation adjustments. But, Forbes reports,
when it comes to private pension and retirement savings plans, there’s no prohibition against giving contribution limits a deflationary haircut. It isn’t clear whether the Internal Revenue Service will in fact lower 401(k) contribution limits, says Mercer consultant Bill McClain. “The law is gray,” he says.
The IRS is supposed to announce the 2010 limits on Oct. 15.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
this is just a way to increase taxes…
By dropping the maximum you can contribute, means an extra $500 the government can tax an individual. Granted most people, do not contribute the “maximum” but the affluent usually do… Either way this is a tax increase disguised as something else, –Now thats “change” you can believe in.
If you’re able to max out your 401k, you shouldn’t be whining in the first place. There are plenty of people struggling to put food on their tables right now, boo-freaking-hoo if you have to pay taxes on an extra $500 next year.
Dave,
Since I worked hard, made the right choices in my life and am now reaping the benefits of that, I shouldn’t be “whining”. Sometimes I forget that there are people out there that don’t make the right choices in life, don’t work hard and therefore are “struggling to put food on their tables right now”. I also forget sometimes that it is my job, as part of the honor of living in a welfare state to help support these bums through higher taxes. Its people like you that always make me think back to a bumper sticker I see from time to time…”work harder, people on welfare are depending on you”.
I agree Davidh. Apparently “rich” means someone like me making 65k a year with a stay-at-home wife and two kids. I max out my 401k because it is the smart thing to do and because I (like the majority of people like me 30 years from retirement) don’t expect SS to be around when I am 65.
It isn’t JUST paying taxes on the extra $500 Dave, it is the lost investment compounded over 30 years that hurts too. But then the smart ones like Davidh and I are thinking long term, and you are not. Good luck retiring on SS buddy…
I totally agree with davidh777. It makes me feel proud to be an American to see poor people because it reminds me that I did everything right, while those godless heathens obviously are reaping what they sow.
I find it hilarious that people have no problem that OUR FEDERAL GOVERNMENT GAVE you a possibility that some of the income (401k contribution) goes tax-free. Unless you are completely against income tax (in which case I’d like to hear your model of government/state fiscal existence), how is this ok?
the tax on 500 dollars is just one more way for Obama to soak it to the people that are making good money. 200 hundred dollars out of my pocket is one less IPod I will buy for my kids.
Personally, I think all income based taxes should be eliminated and replaced with a sales tax. That way if i decide to spend my money, I am choosing to support the welfare society. If i decide to save my money, they can go to France and get the support they need.
dr,
Our form of government is fine. Our tax system is broke. I have a very simple solution to fixing that as well. Bob hit on it. Have you ever heard of the “fair tax”? It is exactly what it sounds like, a “fair tax”. Income tax is dissolved and replaced with a flat 25-32% sales tax. The more I spend the more I’m taxed…I’m fine with that. The government would probably have to cut back on the social welfare programs, but just in case you couldn’t tell, I personally wouldn’t have a problem with that. But then again I have a work ethic and don’t believe in living off the government; and I sure as heck don’t believe in allowing people to live off of my tax dollars either (to a certain extent, I do understand people fall on hard times and need help on occassion, but not for their entire life).
How come it is so hard for people to see things through the eyes of another? It really makes you sound like you have gone through life with blinders on, sheltered. People have problems, not everyone in America has the opportunity to attend a decent school. Do you want these people roaming the streets?
davidh777, how is an excise tax “fair?” You want to punish people for selling things? I can already predict what’s going to happen if we implement a “fair” tax. People like you are going to complain that the government is “punishing” them, and whine about how they’re going live on their own and make everything from scratch in order to avoid taxes.
Your complaint has nothing to do about what’s “fair.” It’s about selfish people wanting the benefits of an ordered society without having to pay for it.