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IRS Announces 2010 Contribution and Income Limits

The recent economic turmoil has caused some speculation about the traditional contribution and income limit increases for IRAs and 401(k)s. Would there be an increase this year or would we actually see a decrease in the limits? The IRS recently set minds at ease by announcing the contribution and income limits for 2010.  In recent months, there has been much speculation about how the IRS would deal with a negative Cost of Living Adjustment (COLA) – something that has not occurred since the introduction of IRAs.

The COLA is calculated each year based on the Consumer Price Index (CPI) published by the Bureau of Labor Statistics.

From the 3rd quarter of 2008 to the third quarter of 2009, the CPI dropped about 2%. The last time there was an annual drop in the CPI was 1955.

Some people were worried that a drop in the negative COLA would result in a reduction of the contribution limits. Thankfully, these fears were unfounded, as the limits published for 2010 will remain that same as 2009 for most plans. See the chart below for a rundown of all the 2010 contribution limits.

2010 Contribution Limits
Account Type Regular Limit Catch-up Limit
Traditional IRA $5,000 $6,000
Roth IRA $5,000 $6,000
SEP IRA $49,000 $49,000
SIMPLE IRA $11,500 $14,000
CESA $2,000 N/A
HSA (single/family) $3,050/$6,150 $4,050/$7,150
401(k) (including Roth 401(k)) $16,500 $22,000

The only plan that will see an increased contribution limit for 2010 will be the Health Savings Account (HSA). This isn’t too surprising, given the skyrocketing cost of healthcare today.

With a freeze on contribution limits for another year, those wishing to make larger 2010 contributions will want to look to the many small business retirement plans available (SEP, SIMPLE, Individual(k)). And… don’t forget you can use your self-directed IRA to purchase real estate investment property.

source: Equity Trust Company

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