Comments on: 2010 IRS Maximum Allowed 401k Contribution Announced

By: Kevin

Kevin — Tue, 23 Feb 2010 04:35:17 +0000

@ Kurtis

You think that the 25 year old kids that are still living at home with their parents are maxing out their 401ks and IRAs? No, they waste it all, thats why they cant move out. I’d say thats why 99% of kids live at home … they make no money, or save no money.

By: Aggie2001

Aggie2001 — Thu, 31 Dec 2009 20:32:05 +0000

I could use the tax breaks now but I think that it would be better to fully fund the Roth 401K because in the long run I think I would be better off with all the untaxed interest gained. Also, my wife plans on quitting her job once we have kids and I won’t have the option of the Roth 401K anymore. Just the $5K per year Regular Roth ira.

By: G.E. Miller

G.E. Miller — Thu, 31 Dec 2009 20:11:11 +0000

@ Aggie – that all depends on whether or not you could use the tax breaks now to help you achieve short and mid range financial goals (traditional) vs. waiting for the tax breaks in retirement (Roth). Some argue that tax rates will go up over time and advocate the Roth for that reason.

By: Aggie2001

Aggie2001 — Thu, 31 Dec 2009 01:13:40 +0000

I just found this site and the information is excellent. My roomate tried to talk me into a Roth IRA in college but I was too busy drinking beer and watching Jerry Springer to listen. I regret it now but I have done my best to catch up. I am glad to hear that the ROTH income caps will be removed in 2010 but wish the $4,000 limit would increase. I own a business and max out my SEP IRA but my income has been to high to fund a Roth for the past few years. My wife’s company now offers a Roth 401K which seems like a great idea especially with the $16,500 cap vs the $4K in the regular Roth. Now we need to decide wether a regular 401K, roth 401K or a combination of the two will work best for us. Any ideas?

By: G.E. Miller

G.E. Miller — Thu, 10 Dec 2009 23:14:05 +0000

@jh – not advocating inflation in any way. I realize that the caps are tied to inflation – but that does not mean that I am ‘pro-inflation’. I’m pro retirement savings. Although a little inflation in this economy would not hurt at the moment.

By: jh

jh — Thu, 10 Dec 2009 05:28:15 +0000

I can’t believe that this site is simultaneously advocating saving for retirement and inflation (inflation is the only reason that the 401K contribution cap increases). Sure, if the contribution cap increases, but the inflation that drives up the contribution cap also REDUCES the value of ALL previous hard-earned contributions and gains. Anyone saving for retirement is far better off with stable currency. Sure, a higher cap would be nice, but to do so without inflation will require a more fundamental change to the current law.

By: Eric

Eric — Tue, 08 Dec 2009 01:11:36 +0000

Sara I beleive your comment about the contributions stopping once you make 245K is incorrect. My employer only allows me to contribute 6% of my income and I have maxed my 401K this year. That means 275K at 6% would be 16500. If it were 245K I would have been capped at 14700.

By: Kenicity

Kenicity — Mon, 23 Nov 2009 22:19:05 +0000

I have maxed out my retirement plan and husband has too for the past 5 years. It feels great! I do wish they would increase limits.
We are nearing retirement age, and are much farther from the million dollar goal than I projected two years ago.

I do not expect increases in the contribution limits in the future. The government wants you to spend, not save, to help the economy “recover”. They also need more tax revenue, so I expect they will change the rules more frequently as the deficit grows, and find ways to increase tax revenues wherever they can.

By: Dave

Dave — Sun, 22 Nov 2009 16:02:22 +0000

“How does someone retire off $16.5k/yr after 30 years? Ain’t gonna happen.”

This and some of the other earlier comments seem to imply that the only way to save for retirement is with a 401(k).

There are other options:
- Roth IRA (if you qualify), which I think is the first thing that should be funded, even before the 401(k)
- Traditional IRA (if you don’t qualify for a Roth)
- Some companies still have some sort of pension plan or contribute some amount to a 401(k) for you which is in addition to your own contributions
- and of course there’s always the way our parents/grandparents saved for retirement before all these tax-advantaged options came along: put aside part of every paycheck and don’t touch it until you need it during retirement. There’s no tax advantages to this, but when you’re 80 and go to the pharmacy to get your medication, they’ll take the money and give you the pills regardless of whether or not you got a tax break when you saved that money.

Social Security might also provide retirement income, though I personally am not counting on that given the condition that it’s in and the perpetual lack of anyone in Washington with the courage to fix it.

“The maximum 401K contribution limit has never stayed the same three years in a row, so we do have history on our side.”

I wouldn’t count on history helping us. Since 401(k)s started, the economy has never been as bad as it is now. The years of gluttony and financial irresponsibility on the part of the government, many companies, and many citizens have finally caught up with us and it’s time to pay the piper. Unfortunately, the people that were responsible also have to suffer (though in most cases not as much as the others, which is as it should be). I think it’s going to take years to get out of the hole we dug, so I think the odds of a third straight year with no increase – or possibly even a decrease – are much higher than they’ve ever been.

By: Sara

Sara — Wed, 18 Nov 2009 22:00:09 +0000

@ Broke MBA The 401k limits are in place only to be considered a ‘qualified’ retirement plan. In order for the company to maintain and keep the plan open for its employees, it has a lot of tests it has to go through – a big component of this is the discrimination test. Clearly not all customers pay each employee the same amount, but the plan has to have participation from all classes of employees without ‘discriminating’ against those who don’t make as much. The limits apply to everyone who’s a participant in the qualified 401k. One of the reasons why being a qualified plan is so important is because then the plan is covered by ERISA.

Two things to keep in mind though, once your income hits the compensation limit for the year (it’s $245,000 for ‘09, not sure what 2010 is), even if you haven’t had a chance to contribute the full $16.5 , you automatically cannot contribute anymore. A lot of people aren’t aware of this and it could affect you big time if you were planning on maxing out.

HOWEVER, what a lot of people don’t know, is that many companies offer non-qualified 401k plans. Each plan is different, but once you reach the Compensation limit of $245, then you can start contributing to the non-qual plan AND if you’re employer is nice, they may match it too.
-Only downside of this, is that the non-qual plan is not covered by the ERISA guidelines, so that if the company goes under, those amounts may not be protected.

Sorry it’s such a long answer, but each ‘tidbit’ plays into the next one to try and explain it.

One of the best things anyone can do is call their company to have someone explain their 401k to them. There’s also a ton of information available out there on these accounts. I personally don’t like that there’s a limit and hope that someday I’ll make enough to be able to max out. On a side note, I’m only 23 years old and think that saving should start as soon as possible – I’m worried that SS may run out before I even turn 40. I’m trying to plan my future as best I can, but live on my own in an apt in Boston, work full time, go to grad school at night and have still managed to put away about a year’s salary in my 401k. It’s not easy, but the way I see it, if I can take the time to learn about it, and save as much as I do, then anyone can really. Sorry all I didn’t mean to go off on a tangent, but it’s something I’m pretty passionate about. Hope the first part helps! haha