Update: On October 20th the IRS announced the 2012 401k contribution limits.  My prediction was right as the limit has increased to $17,000.  Here are the highlights:

-The maximum contribution for 401k’s increased from $16,500 to $17,000

-Catchup contribution limits were unchanged at $5,500

Read the original post here:

If you’re like me, you like to contribute as many before tax dollars as you can to your 401k so you can maximize your savings and decrease your tax bill.  But after three years without increases in the 401k contribution limits, you may be wondering if things are looking up for 2012 and an increase is headed our way. Check out the analysis below to get some background on historical contribution limits as well as how I estimate they will change for 2012.

Historical 401k contribution limits

As you can see, contribution limits have remained flat for the past few years.  This is due to a lack of cost of living adjustments because the rate of inflation has been too low to trigger an increase.  The IRS uses annual changes in the consumer price index for urban workers to determine whether there are any increases.  In 2009, 2010, and 2011, these increases were not sufficient to trigger an increase in the maximum contribution.

Source: IRS Cola Tables

Alright already, what do you think the 2012 limits will be?

I did some analysis based on the CPI tables for the past few years, and I believe that the 2012 401k contribution limits will be $17,000 for those under 50.  This is based on data through June 2011.   I predict that the catchup contributions will remain the same at $5,500.   Thus, doing the math, if you are 50 or older at the end of 2012, your tax deductible limit on 401k’s will be $22,500.  It’s important to note that these are just predictions, so check back in October when the official numbers are release to see how I fared.

I’m a little nervous about my predictions, but last year they played out so I feel pretty confident.  Let me know if there are any other financial measures you’d be curious to know a prediction about for 2012.   Here’s to hoping for a $500 increase in the 2012 401k maximum contribution limit (fingers crossed!).

In October of 2010, the IRS released updated guidance on 401k tax rules for 2011, including information on the 401k contribution limits for 2011. However, scanning through the IRS’ website is a nightmare, so here’s what you need to know for 2011:

1. Generally speaking, what was true in 2010 is true in 2011.  Because there were no cost of living adjustments, basically none of the limits have changed for 2011.
2. The limit on contributions to a traditional or Safeharbor 401(k) plan is unchanged at $16,500 for 2010 and 2011 for those under 50.
3. If you are 50 or older, you may be eligible to contribute an extra $5,500 to your 401(k) or an extra $2,500 to your SIMPLE 401k plan.
4. Thus, doing the math, if you are 50 or older at the end of 2011, your tax deductible limit on 401k’s is $22,000 and for your SIMPLE IRA is $14,000.
5. If you contribute to multiple retirement plans, your contributions may be combined across those accounts.  For instance, if you have a traditional IRA and a 401k, you will likely not be able to deduct from your taxes more than $16,500 between the two plans if you are under 50, or $22,000 if you are 50 or older.
6. If you contribute to a SIMPLE 401k plan, the limit is $11,500 for 2010 and 2011.
7. Verify with your plan to make sure that your plan does not impose other limitations on what you can deduct.
8. You can’t contribute more than you make or have more than $49,000 in contributions between all of your accounts (including your employer match).
9. Your income above $245,000 can’t be considered for an employer match.