According to the October 15th announcement made by the IRS, "The limitations that are adjusted by reference to Section 415(d) will remain unchanged for 2010. This is because the cost-of-living index for the quarter ended September 30, 2009, is less than the cost-of-living index for the quarter ended September 30, 2008, and, following the procedures under the Social Security Act for adjusting benefit amounts, any decline in the applicable index cannot result in a reduced limitation."
No Increases for 2010
"Most working professionals have access to a 401(k) plan or a 403(b) plan at work. Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred. Like 2009, you can contribute up to $16,500 into a 401(k) or 403(b) plan through salary deferrals in 2010," says Andrew Schwartz CPA, founder of FindAGoodCPA.com (www.FindAGoodCPA.com), a site where taxpayers can locate a CPA in their metropolitan area based on the CPA’s specialty.
Anyone 50 or older by December 31, 2010 can contribute an extra $5,500 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $22,000. That is the same as what was allowed during 2009.
Many smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE's work just like 401(k) plans, which means it's up to each employee to fund the bulk of this type retirement savings account through salary deferrals. For 2010, the maximum contribution into your SIMPLE remains at $11,500. Anyone 50 or older by December 31st can sock away an additional $2,500 in 2010, for a total annual contribution of $14,000, unchanged from 2009.
"And if you are self-employed, you can contribute up to 20% of your net self-employment income into a SEP IRA. The maximum contribution into your SEP IRA for 2010 remains at $49,000." says Schwartz.
One Increase to IRAs
Don't forget about IRA's. There is a bit of good news for people looking to contribute to a Roth IRA in 2010. While the amount a person can earn and still contribute to a Roth has not increased for single individuals, this threshold did increase by $1,000 for married couples as follows:
| Single Individuals | Married Couples | |
| Phase-out begins | $105,000 | $167,000 |
| Phase-out ends | $120,000 | $177,000 |
If your income is too high for a Roth, don't forget that the rules changed a few years ago, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA. This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts. For more information, please check out these articles available at www.FindAGoodCPA.com:
Should You Convert To A Roth in 2010?, available on our May 2009 Newsletter.
Take Our Roth IRA Conversion Quiz, also available on our May 2009 Newsletter.
The Re-Emergence of Non-Deductible IRAs, available on our March 2007 Newsletter.
And finally, if you're married and your spouse isn't covered under either an employer sponsored or self-employed retirement plan during the year, the phase-out range for your spouse making a deductible IRA contribution has increased to $167,000 - $177,000, which is identical to the Roth IRA phase-out limits.
Monthly Budget
Most people won't be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. With 2009 winding down, now's the time to start thinking about resetting your monthly retirement savings goals for 2010.
2010 Maximum Retirement Account Contributions
Retirement Savings Option |
Under the age of 50 |
50 or older by December 31st |
401(k) or 403(b) |
$16,500 ($1,375.00/month) |
$22,000 ($1,833.33/month) |
SIMPLE IRA |
$11,500 ($958.33/month) |
$14,000 ($1,166.67/month) |
SEP IRA |
$49,000 ($4,083.33/month) |
$49,000 ($4,083.33/month) |
Solo 401(k) |
$49,000 ($4,083.33/month) |
$54,500 or ($4,541.67/month) |
IRA |
$5,000 ($416.67/month) |
$6,000 ($500.00/month) |
Website Resources
"For the very latest tax and basic financial planning information, visit www.FindAGoodCPA.com," says Schwartz.
