401(k) Savings Limits Stay the Same in 2010

Most Americans don’t come close to contributing the maximum amount

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The maximum contribution limit for 401(k)s and other retirement accounts will stay the same next year, the IRS recently announced. The contribution ceiling will remain $16,500 in 2010. Workers age 50 and older will be able to make catch-up contributions of an additional $5,500 next year, also unchanged from 2009.

[See Half of Laid-Off Workers Raid 401(k)s.]

Annual 401(k) contribution limits are tied to the Consumer Price Index for urban consumers, which fell over the past year. The IRS announcement relieved fears that 401(k) savings limits would be lowered next year. The IRS says that provisions of the Social Security Act do now allow for reducing retirement account limits. The annual maximum may be increased in future years when the cost of living rises.

However, most retirement savers are not affected by 401(k) contribution limits. The typical 401(k) account holder tucked away an average of just $5,600 in 2008, according to a study of 11 million Fidelity 401(k) participants.

[See 7 Things to Consider Before You Move Your Nest Egg into an IRA.]

Only 10 percent of 401(k) and other retirement plan participants saved the maximum amount in 2008, according to an analysis of 3 million Vanguard retirement account participants. And only 13 percent of those age 50 and older took advantage of catch-up contributions when they were available.

Wealthy households are the most likely to bump against annual savings limits. Some 40 percent of retirement savers earning over $100,000 annually maxed out their 401(k), Vanguard found.