IRS won't lower maximum contribution limits for 401(k)

[Omaha Steve]

http://www.mercurynews.com/business-headlines/ci_13572133?nclick_check=1

By David Pitt

Associated Press

Posted: 10/17/2009 04:03:00 PM PDT
Updated: 10/18/2009 06:34:33 AM PDT

DES MOINES — The maximum contribution limits for your 401(k) and other retirement plans will stay the same next year, the IRS says.

The agency released a statement Thursday keeping the maximum contribution rate at $16,500 instead of lowering it, as some had feared.

Retirement plan advisers said a lower contribution limit would send the wrong signal to investors, who already largely do not save enough.

The maximum contribution is established by using a formula tied to the third-quarter Consumer Price Index for all urban consumers — the CPI-U. This year the CPI-U fell 1.3 percent over the past 12 months.

The IRS said procedures in the Social Security Act for adjusting benefit amounts do not allow it to reduce limits.

The CPI-U measures the average change in the prices of goods and services including food, clothing, shelter, fuel, drugs and other day-to-day items bought by U.S. urban consumers. It is released by the U.S. Department of Labor.

The falling index meant that for the first time ever the Internal Revenue Service was faced with the possibility that the maximum contribution level — now at $16,500 — could have been lower than the year before.

FULL story at link.