Friday, August 28, 2009

Less less less - how do you like the possible 401(k) cutoff reductions?

We have a mental mindset that assumes that things will always increase - a mindset that influences our business thinking. For example, since we assume that population always increases, we assume that the market for various generic goods will also increase. And because most of us have only lived in inflationary times, we assume (absent other factors) that wages and benefits will also increase.

Not so fast. links to USA Today:

The IRS will announce 2010 contribution limits for 401(k) plans in October, based on a formula tied to the inflation rate in the third quarter vs. the year-ago quarter. For 2009, most workers can contribute up to $16,500 to their 401(k) plans, plus an additional $5,500 if they're 50 or older.

Unless inflation picks up in August and September, the IRS could be forced to reduce the cutoff to $16,000 in 2010, according to an analysis by Mercer, a human resources consultant. The threshold for catch-up contributions could be reduced to $5,000. This would mark the first time the IRS has reduced 401(k) contribution limits.

But this is just an analyst's estimate. What does the IRS say?

The IRS is reviewing the relevant law, IRS spokeswoman Nancy Mathis said in an e-mail. With some inflation figures still outstanding, it's too early to speculate on limits for 2010, she said.

Perhaps it's just me, but if the ending calculations indicate that the 401(k) contribution should be decreased, approximately 535 people who work in Washington, DC will officially deplore this situation, emphatically state that the evil IRS should not break the backs of working people who are responsibly saving for retirement, and will pass an emergency stimulus bill preserving the current cutoff limits.

Or am I too cynical?
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