IRS could cut 401(k) contribution limits in 2010


It's hard to imagine, but it's true: two years after one of the greatest stock market drubbings in history, at a time when most people will need to put their saving into overdrive to recoup what they've lost, the IRS may actually reduce the amount you're allowed to contribute to your 401(k) in 2010.

And it isn't even really its fault: 401(k) contribution limits are indexed to inflation. A temporary decline in prices has led to deflation in recent months -- and that could mean a decline in 401(k) limits to $16,000, which would be down $500 from this year's max, according to the USA Today.

Congress could act to change this because of the extraordinary circumstances, and hopefully it will. With all the money that is being pumped into the economy to try to stimulate spending, it would be absolutely criminal to discourage people from saving at a time when saving has never been more important.

But in order to get this taken care of in time, Congress will need to start looking at possible solutions now -- I would support raising the cap on 401(k) contributions to $30,000 per year for the next three years to encourage/allow people to play catch up in the wake of the recession. Here's an idea: write to your Congressman today, include this blog post (or the USA Today story) and make him or her aware of this issue.