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Are You Ready for 2011?

With President Obama and Congress being focused on the many problems facing the nation at present, including health care reform, one issue that has not been addressed is the January 1, 2011 expiration of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (or EGTRRA for you lovers of acronyms) as they affect retirement planning.

To make a long story short, in order to meet certain budgetary restrictions, EGTRRA was set to expire on January 1, 2011.  If its provisions were to continue to exist in the law, it would require an act of Congress to extend them beyond the expiration date.  If not extended, the Internal Revenue Code reverts back to the way it read pre-EGTRRA.  Although President Obama has indicated that he may let the tax rate reductions of EGTRRA expire as they apply to the wealthiest Americans, there has been no indication of what will be done about the expiring retirement provisions.

What does this mean?  Check out the table below, which compares the current and pre-EGTRRA contribution limits for 401(k) plans and Individual Retirement Accounts (IRAs), the combined limit on employee contributions and employer matching contributions to 401(k) plans, and the additional "catch-up" contributions available to individuals age 50 or over.

  Current Pre-EGTRRA
401(k) employee contributions limit $10,500 $16,500
401(k) combined limit 30,000 49,000
401(k) catch-up contributions limit 0 5,500
IRA contributions limit 2,000 5,000
IRA catch-up contributions limit 0 1,000


As you can see, if the retirement provisions of EGTRRA are allowed to expire, beginning in 2011 your ability to save for retirement using tax-favored vehicles will be severely curtailed.  It's hard for me to believe that President Obama and Congress will actually allow this to happen.  On the other hand, at the risk of sounding like Yogi Berra, nothing ever happens until it happens.  Thus, I'd recommend taking full advantage of the more generous retirement plan contribution limits in 2009 and 2010 in anticipation of lower limits in 2011.