During October, the IRS announced the cost of living adjustments applicable to the various retirement plan limitations. Unfortunately, the bulk of the retirement savings limits will not increase from 2010.

According to the October 15th announcement made by the IRS on Pension Plan Limitations for 2010, "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.

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 you to fund the bulk of this 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.

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 you can earn and still contribute to a Roth has not increased for single individuals and remains at $105k-$120k, this threshold did increase by $1,000 for married couples to $167k-$177k.

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.

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.


Andrew Schwartz CPA is a partner in the Woburn, MA CPA firm, Schwartz & Schwartz, PC, a firm specializing in the tax issues affecting healthcare professionals and their practices. Andrew is also the founder of The MDTAXES Network (www.mdtaxes.com), an association of CPAs who specializes in the tax issues affecting doctors and their practices.