The latest travesty from the IRS seems to be limiting 401k contributions to the same amount as last year at $17,500 with no adjustments for inflation. Did I miss something where inflation was put on hold this year?

Here is an historical look at 401k contributions for the last few years:

2005 – $14,000 for 49 and younger and $4000 more for those 50 or over
2006 – $15,000 for 49 and younger and $5000 more for those 50 or over
2007 – $15,500 for 49 and younger and $5000 more for those 50 or over
2008 – Same as 2007
2009 to 2011 – $16,500 for 49 and younger and $5500 more for those 50 or over
2012 – $17,000 for 49 and younger and $5500 more for those 50 or over
2013 – $17,500 for 49 and younger and $5500 more for those 50 or over
2014 – same as 2013

If I go back to 2005 and apply a simple 3 pct inflation adjustment to the original 2005 contribution limits and used that as a basis then the 401k limits should have been

2006 – $14,420 and $4,120
2007 – $14,852 and $4,244
2008 – $15,298 and $4,371
2009 – $15,757 and $4,502
2010 – $16,230 and $4,637
2011 – $16,716 and $4,776
2012 – $17,218 and $4,919
2013 – $17,735 and $5,067
2014 – $18,266 and $5,219

The overall trend does not bode well for the average retiree. The IRS limits are trending downward not in favor of the average worker when factored against inflation for the last four years. For 2014 the variance from $18,266 to $17,500 is $767 in income excluded from 401k contribution on an inflation adjusted basis.

So now let’s take a look at the social security wage limits.

2005 – taxes on $90,000 of income
2006 – $94,200
2007 – $97,500
2008 – $102,000
2009 – $106,800
2010 – $106,800
2011 – $106,800
2012 – $110,100
2013 – $113,700
2014 – $117,000

Interestingly, if I take the 2005 amount of $90,000 and apply a 3 pct inflation adjustment, The 2014 value is magically $117,430. It seems when it comes to social security income taxes inflation is alive and well!

When it comes to helping taxpayers save money using 401k, the US government screws the taxpayer. When it comes to taking money for social security, the US government screws taxpayers yet again.

And now you know why I won’t be voting for donkeys next election cycle!