Retirement account contribution limits going up in 2009

December 6th, 2008 · 1 Comment

Did you know that the IRS has announced an increase in contribution limits to retirement accounts for the tax year 2009?  I recently discovered this while working on a budget for next year to help us hit our geographic independence goal, but have noticed news of it isn’t widespread.

Retirement contributions cast a large shadow

Retirement contributions cast a large shadow

The short sentence that probably answers what most people want to know:  the 401(k) contribution limit for 2009 is now $16,500.

The IRS periodically makes these changes to adjust for changes in the cost of living, but does so only when a certain threshold is overcome.  Apparently, sometime between Oct, 2007 and Oct, 2008, the cost-of-living index the IRS uses as its basis overcame this threshold triggering the change in contribution limits for many types of retirement accounts, though not all of them.  For example, I may be missing it because I’m not a tax expert, but it looks like the limitation on IRA contributions (traditional and ROTH) is not effected by this announcement.  Some of those that are changing are:

  • Exclusion for elective deferrals {section 402(g)(1)}, which controls 401(k) contributions as well as other plans such as the government’s Thrift Savings Plans, goes up to $16,500 from $15,500.
  • Catch-up contributions for those who are 50 or over {section 414(v)(2)(B)(i)} have increased to $5,500 if yours were at $5,000 for 2008, but if your plan’s was $2,500 in 2008 it is unchanged for 2009.  I believe all IRA and 401(k) are at the $5,500 limit now.
  • The AGI limitations on contribution to a ROTH IRA {section 408A(c)(3)(C)(ii)(I)} for married taxpayers filing jointly has gone up to $166,000 from $159,000.  For everyone else, except marrieds filing separately, the limitation is now $105,000 from $101,000.  I guess marrieds filing separately got screwed here?
  • SIMPLE retirement accounts {section 408(p)(2)(E)} goes up to $11,500 from $10,500.
  • Defined contribution plans {section 415(c)(1)(A)} goes up to $49,000 from $46,000.
  • Defined benefit plans {section 415(b)(1)(A)} goes up to $195,000 from $185,000.
  • Contributions to the imaginary retirement plan {section 4,444(a)(1)(Z)(iii)(-1)(natural logarithm)(pi)(alpha)(3)} are still zero with a guaranteed infinite pay-out.  Seriously though, someone needs to simplify the sections in the tax code!

The full details for these, and even more changes, can be seen on this IRS announcement.

Tags: 401k · IRA · Taxes

1 response so far ↓

  1. 1 Kimberly // 2008.12.06 at 9:24 am

    It would be great if the IRS and all of these retirement accounts could be simplified so that normal people could actually understand it all. I think that might encourage people to save more because right now it is very confusing and more than a little intimidating. Too many things like ‘{section 408(p)(2)(E)}’.

    And wouldn’t it be nice if they would do the catch up contributions for people under 50 too? They could have a sliding scale so that younger people that made little retirement savings plans when they were in their 20s could catch up too. So, people in their 50s can catch up to the tune of $5500 per year, people in their 40s could add $4400 per year, and people in their 30s could do $3300 per year. I just know that there are many people that didn’t realize when they were young that saving was so important, or you have a crappy job and you are just lucky to be able to eat and have a place to live.

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