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.
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. In September 2008, inflation was 4.94%, because of energy costs. It's been negative since March.