New 401(k) limits for 2007
On Oct 18, 2006, the Internal Revenue Service announced the cost of living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2007.
Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the Commissioner annually adjust these limits for cost of living increases.
Many of the pension plan limitations will change for 2007. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,000 to $15,500. This limitation affects elective deferrals to Section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.
The 401(k) limit increase of $500 from $15,000 to $15,500 represents an increase of 3.33%.
Deferring taxes is usually a good strategy since it allows your investments to compound faster; plus you will probably be at a lower tax rate during the retirement withdrawal phase. Personally, I would take advantage of this new limit as soon as the new year rolls in.
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