Update: On October 20th, 2011 the Internal Revenue Service announced the 2012 401k contribution limits. My prediction was right that due to inflation cost of living increases would be made. As a result, the limit on pre-tax contributions has increased for 2012 to $17,000 ($22,500 including catch up contributions). 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
See a full table of the contribution limits here.
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.
|401k contribution limit||$16,500||$16,500||$16,500||$17,000|
|Catch-up contribution (for those 50+)||5,500||5,500||5,500||5,500|
|Total including catch-up||$22,000||$22,000||$22,000||$22,500|
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!).
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