How Do IRA/401k Annual Inflation Max Contribution Levels Work?
Posted: Mon Oct 01, 2012 10:06 pm
IRA/401k Maximum contribution levels may adjust each year in $500 increments depending on inflation. I read that if inflation hits the threshold of that $500 mark, then the annual contribution cap is raised. If not, then it stays the same.
IRAs have been at $5k for several years now while 401ks keep going up $500 each year or so. My question is if the inflation adjustments are cumulative or not.
For example, suppose the current level is $5k for an IRA and inflation is calculated at 3%. That's $150, which is below the $500 mark, so the level stays the same next year. However, suppose inflation is 3% per year for the next 3 years. Common sense would dictate that the operative comparison should be to the year the $5k level was first hit, and not simply the previous year before it, otherwise we'd need >10% "reported" inflation to hit the next level. Yet nothing the government does makes any sense, so I wouldn't be surprised to hear that we'll be at $5k in perpetuity.
Does anyone know for sure? Are there any websites that track this on a monthly basis? I know with IBonds there's sites (possibly blogs) that take the monthly reported inflation numbers, and extrapolate out estimates on the next 6 month IBond rate. Maybe someone is doing that for IRAs contribution levels? I'd love to know what I can contribute in 2013
IRAs have been at $5k for several years now while 401ks keep going up $500 each year or so. My question is if the inflation adjustments are cumulative or not.
For example, suppose the current level is $5k for an IRA and inflation is calculated at 3%. That's $150, which is below the $500 mark, so the level stays the same next year. However, suppose inflation is 3% per year for the next 3 years. Common sense would dictate that the operative comparison should be to the year the $5k level was first hit, and not simply the previous year before it, otherwise we'd need >10% "reported" inflation to hit the next level. Yet nothing the government does makes any sense, so I wouldn't be surprised to hear that we'll be at $5k in perpetuity.
Does anyone know for sure? Are there any websites that track this on a monthly basis? I know with IBonds there's sites (possibly blogs) that take the monthly reported inflation numbers, and extrapolate out estimates on the next 6 month IBond rate. Maybe someone is doing that for IRAs contribution levels? I'd love to know what I can contribute in 2013