IRS May Cut 401(k) Contribution Limit

By Drew Nelles,  Newser Staff
Posted Aug 27, 2009 12:29 PM CDT
IRS May Cut 401(k) Contribution Limit
Internal Revenue Service Commissioner Douglas Shulman testifies on Capitol Hill in Washington, Wednesday, April 1, 2009, before the House Small Business Committee.   (AP Photo/Manuel Balce Ceneta)

Low inflation could force the IRS to decrease the amount workers can contribute to their 401(k) plans to $16,000, USA Today reports. It would mark the first time the government has ever lowered contribution limits. Though a spokesperson says it’s too early for speculation, the IRS may not have any choice. "A strict interpretation of the code could lead them to believe that's their only option," a consultant says.

Additional catch-up contribution limits for those 50 and over may also have to be reduced to $5,000 from $5,500. And negative inflation may mean that Social Security recipients won’t receive a cost-of-living adjustment for the first time since the adjustments were instituted in 1975. Lower contribution limits during the recession and the stock market's woes could prompt a strong public backlash, an analyst predicts.
(More 401(k) plans stories.)

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