I'm heading to Columbus, Ohio on business for my holding company and happened to be researching some retirement information for a new piece of content I'm writing when I came across a story distributed by the Associated Press.
According to an arcane rule in the 401(k) contribution limits established by Congress, part of the maximum allowable contribution is determined by changes in the consumer price index, or inflation rate. That's where the problem starts ...
However, the maximum contribution is established by using a formula tied to the third quarter Consumer Price Index for all urban consumers. That's normally not a concern for investors because inflation has steadily increased. What's potentially troubling is that the CPI-U figure for this year, to be released on Oct. 15, is expected to be lower than a year earlier.
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 CPI-U jumped more than 5 percent in the third quarter of 2008 compared with the same period a year earlier, which bumped up the contribution limit for this year. But, since March 2009 the index has come in below the corresponding 2008 value. It's anticipated that this year's third quarter will be lower than the 2008 figure. That means for the first time ever, the Internal Revenue Service is faced with the likelihood that the maximum contribution level -- now at $16,500 -- will be lower than the year before. If current assumptions are correct, the CPI-U number will lower the amount you can contribute to your 401(k) in 2010 to $16,000.
The article goes on to point out that only 10% or fewer of people contribute the maximum permitted into their 401(k) account, but that's still a large chunk of the work force measuring in the millions of people.
Nice article and a great site. I look forward to reading through it!
My heart goes out to all those who are troubled by the assumed restriction to merely $16,000 for their 401K in the 2010 year.
I am curious to see if Congress will raise the maximum we can contribute. They just passed a bill that would keep Medicare Premiums flat for seniors that are not getting a bump in Social Security.
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