August 31, 2009

Tax-deferred plan limits may drop

As Market Watch's Robert Powell notes, it's starting to seem like retirees and those saving for retirement can't catch a break.

"First comes news that there won't be any cost-of-living increase for Social Security beneficiaries in 2010. Next we learn that beer prices are rising. And now we find that the maximum amount that you're allowed to contribute to your retirement plans may decrease next year," he writes.

"If recent inflation patterns continue into September, it's possible there will be a decrease in the statutory limits on qualified retirement-plan contributions and benefits for 2010," according to a report released by Mercer, the consulting firm, which Powell cites.

"The limits for defined-contribution and defined-benefit plans -- including the amount clients can save in a 401(k) -- are adjusted each year according to a statutory formula based on inflation. And depending on actual inflation levels for August and September, Mercer said the formula could produce limits for 2010 that are lower than those currently in effect for 2009."

If that occurs, Mercer said employers will be looking to the IRS to decide whether the limits will remain unchanged or be reduced for 2010.

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