Contribution limits for 2010 won’t change after all, despite the earlier threat of a downward adjustment. Treasury Department officials announced this week that maximum contributes will remain at $16,500; catch-up contributions for workers 50 and older will stay at $5,500.

The prospect of a reduction arose due to the low inflation rates we’ve been experiencing as a result of the recession. By law, the Internal Revenue Service sets the 401(k) annual maximum contribution using a formula tied to inflation rates in the third quarter of each year, with adjustments up or down in $500 increments. The ceiling has been rising steadily in recent years; for 2009, it’s $16,500–up from $15,000 as recently as 2006. Workers over age 50 can kick in an additional $5,000 in catch-up contributions.

This was the first time that the limits have been set using the inflation formula when the year-to-year inflation formula produces a downward adjustment–and there was some uncertainty how the IRS would respond, due to a lack of clarity in the tax code. Officials determined that the code didn’t require a decrease in the contribution limit.

Related posts:

1. Inflation May Squeeze 401(k) Contribution Limits In 2010
2. Survey shows investors are confused about 2010 Roth conversions

Tags | 401(k)