The IRS recently announced new dollar limitations for retirement plans due to cost of living adjustments. Over the last several years, these limits have increased significantly as a reflection of the nation’s trend toward a more defined contribution plan-driven retirement system. The updated limits continue this trend as reflected in the new $16,500 limit on employee contributions to 401(k) type arrangements (plus an additional $5,500 in catch-up contributions for employees age 50 or older) and the increase in the overall contribution limit to $49,000 (excluding catch-up amounts).

These new limits have come out at a time when many plan participants have watched their accounts drop by large amounts, sometimes in excess of 40%. Bank failures, bailout mania, and home foreclosures, just to name a few examples, have led to widespread panic in the financial markets. Panic, by definition, leads to irrational decision making. At the end of a day, when the market has dropped more than 500 points, it is hard not to feel like the safest place for one’s money is the mattress; irrational decision making.

Financial professionals across the country have cautioned the public not to get caught up in the panic. You should make well thought-out financial decisions when the market is doing poorly; just as you should when it is doing well. Ironic, isn’t it? History has shown repeatedly that investors inevitably do the wrong thing at the wrong time. With that said, now is not the time to stop contributing to your retirement. Many professionals have argued that now is actually the time to contribute more because many solid investments are on sale.

Individuals should take great care in evaluating their personal financial situation and consider availing themselves of these new limits. Given the change in political climate as well as the dire need for revenue at all levels of government, it remains to be seen how much longer these limits will remain at such high levels. A detailed description of all of the updated limits can be found at www.irs.gov/newsroom/article/0,,id=187833,00.html.

If you should have any questions about the new limits or would like to any of the concepts discussed above, please contact Mark Flanagan of Aronson & Company’s Employee Benefit Plan Services Group at 301.231.6257 or mflanagan@aronsoncompany.com.