Michael A. Webb, vice president, Cammack Retirement Group, answers:
Given the method that the IRS uses to calculate the limits, it is not outside the realm of possibility that the limits will not increase in any given year.
As detailed in our 2011 Ask the Experts column, which explained how the contribution limits are set, if we are in a deflationary environment with respect to consumer prices, or one with limited inflation, contribution and other limits (such as compensation and testing) will not increase. Such limits will only increase if price inflation is sufficiently significant to increase the limit by a certain incremental dollar amount (in the case of the 402(g) limit, $500). If inflation is not significant from year to year, increases will be insignificant (or nonexistent, as they were in 2010 and 2011).
But all is not lost—contribution limits are at historic highs. Remember, it was not too long ago when there was no age-50 catchup, and 403(b) deferrals were aggregated with 457(b) deferrals for 402(g) limit purposes. And remember the exclusion allowance for 403(b) plans? If you do, you will realize how far the contribution limits have come in a relatively short period of time.
Thank you for your question!
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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