Every year, the IRS announces 401k contribution limits. This past October on October 20, 2011, the IRS announced 401k contribution limits for the tax year 2012. Prior to 2012, the maximum 401k contribution was $16,500. Beginning in 2012, the maximum pre-tax 401k contribution is $17,000. 2012 was the first year the IRS announced an increase to 401k contribution limits since 2008.
Please keep in mind that maximum pre-tax contribution limit is indexed to inflation and typically will increase in increments of $500. However, the amount can also increase by $1,000 as it did from 2004 to 2005. For 2013, the maximum 401k contribution may be able to increase to $17,500 or it can stay the same as 2012 at $17,000. Expect an announcement from the IRS around October.
With inflation remaining relatively stable, I don’t expect another increase in the maximum 401k contribution for 2013. However, with all the money printing that is going on by The Federal Reserve, I expect that inflation will eventually be forced to pick up thus resulting in an increase in the 401k contribution limits.
Please also keep in mind that those over the age of 50 are also permitted a “catch up” contribution as they near retirement. For 2012, the catch up 401k contribution is $5,500 and will likely stay the same in 2012. Please read more about 401k contribution limits.