Every year, taxpayers look for opportunities to reduce their
tax bills, and one of the most popular ways to cut income is to
make contributions to
401(k) retirement accounts
401(k) retirement accounts. But for those who routinely aim to
max out their tax benefit, the 401(k) 2014 contribution limit
doesn't give them any more ability to save for retirement than
they had in 2013. Let's take a look at why those levels stayed
the same and what it means for savers.
Image source: 401(
Why was there no increase in the 401(k) 2014 contribution
The contribution limit on 401(k)s has been linked to inflation
for years, and that often produces annual increases in
contribution limits. For instance, in 2013, 401(k) savers got to
save an extra $500 compared to 2012. That followed another $500
increase between 2011 and 2012.
But the contribution limit for 2014 will remain at 2013's
levels. Those under age 50 will be eligible to save up to $17,500
in a 401(k). The catch-up provision for those age 50 or older
will add $5,500 to that amount, letting them save $23,000 in a
The 401(k) 2014 contribution limit didn't change
because inflation wasn't high enough to justify an increase. With
the Consumer Price Index rising about 1.5% during the period the
IRS uses to calculate changes in the contribution limit, the raw,
unrounded figure under the 401(k) law rose from $17,547 to
$17,820, according to figures calculated by Buck Consultants
(link opens PDF). Because the law requires the IRS to round down
to the nearest $500 level, the $17,500 amount stayed the
Similarly, the catch-up contribution limit stayed the same for
the fourth straight year because its inflation adjustment added
less than $100 to its unrounded figure.
Good news comes to those who wait
The silver lining for 401(k) savers is that 2015 is likely
to be a good year, with both the regular contribution limits and
catch-up limit poised to rise at the same time. Inflation would
have to come in at just 1% or higher to boost the
401(k) contribution limit in 2015 to $18,000, and the same
inflation rate would send the catch-up contribution limit to
Until then, though, investors will have to make do with the
same 401(k) 2014 contribution limit that they had in 2013.
With potential tax savings that could rise as high as almost
$10,000 for taxpayers in the highest brackets, though, making
maximum use of 401(k)s still makes sense for millions of
Americans trying to minimize their tax bill.
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