IRS May Cut 401(k) Contribution Limit

By Drew Nelles,  Newser Staff
Posted Aug 27, 2009 12:29 PM CDT
Internal Revenue Service Commissioner Douglas Shulman testifies on Capitol Hill in Washington, Wednesday, April 1, 2009, before the House Small Business Committee.   (AP Photo/Manuel Balce Ceneta)
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(Newser) – Low inflation could force the IRS to decrease the amount workers can contribute to their 401(k) plans to $16,000, USA Today reports. It would mark the first time the government has ever lowered contribution limits. Though a spokesperson says it’s too early for speculation, the IRS may not have any choice. "A strict interpretation of the code could lead them to believe that's their only option," a consultant says.

Additional catch-up contribution limits for those 50 and over may also have to be reduced to $5,000 from $5,500. And negative inflation may mean that Social Security recipients won’t receive a cost-of-living adjustment for the first time since the adjustments were instituted in 1975. Lower contribution limits during the recession and the stock market's woes could prompt a strong public backlash, an analyst predicts.
(Read more 401(k) plans stories.)