The IRS is the governing body that decides upon the maximum contributions when it comes to retirement plans. The 2010 401K max was the result of an unchanging cost of living index since the past year. In 2009, the 401K max contribution limit was also set at $16,500 after an increase of $1,000.
The thousand dollar increase after the 2008 401K contribution was attributed to the increase in cost of living and the improvement of the economy in general. However, the 2010 401K max is clearly a result of the continuous economic crisis that the world is facing until today.
Another significant fact that pinpoints to the economic influence is this year’s 401K max contribution limit. It is still set at $16,500 for employees under 50 years old, and the catch-up contribution is still set at $5,500 for those who are 50 and older. For business owners or self-employed individuals, the 401K limits are still set at $49,500 for 49 years old and below. For those who are 50 and above, the total limit is at $54,000 since they can pay up the basic limit plus a catch-up of $5,500.
What does this mean to employees?
There is a reason to be thankful for the unchanging 401K max contribution limits since wages are mostly stagnant due to the same financial reasons. However, it also means that there’s a lot of work to be done to improve the status of the economy in order to make the cost of living improve over time.
Does this also affect business owners?
Of course. When things are stagnant and not moving upward, that’s an indication that you need to consider especially when you are running a business. Saving money for the future is essential for businesses not just because of the expenses, but also to secure your retirement. It’s hard to face the reality that one day you would have to close down due to the saturated market you are in, or because you are too old to take care of your business and would need to pass it on to your children. Your 401K savings will serve as your cushion when these situations occur.
One of the steps you can take from here on is to be on the lookout for the coming years’ 401K max contribution limits. An increase in the limit is a good indicator that the economy is also improving. It is also a good sign for the near future – that you’ll have more money to spend when you retire.
You may check the IRS website or visit any online financial sites for in-depth discussions about 401K.