Most annual retirement plan limits are indexed to inflation; and because of the decline in the Cost of Living Index in 2009, many of the limits remained unchanged for 2010.

Following are the key retirement plan limits for 2010 as announced by the Internal Revenue Service.

  • 401(k) and 403(b) Deferrals: $16,500.
  • Catch-Up Limit (Age 50 and Older: $5,500.
  • Defined Benefit: $195,000.
  • Maximum Compensation: $245,000.
  • Highly Compensated Employee: $110,000.
  • Social Security Taxable Wage Base: $106,800.

Click here to download our chart for a list of all the retirement plan limits for 2010 compared to 2009 and 2008.

It may be good news for employees, many of whom expected reductions, but not good news for 50 million Social Security recipients. The negative inflation rate meant that they will not get a cost of living increase next year – the first time since 1975.

But while by law, Social Security benefits can’t decline, premiums for the Medicare drug program are expected to increase next year by 11%. Social Security recipients who have these premiums deducted from their benefits will receive reduced checks.

And what are the implications of this deflation beyond 2010? Here is a link to J.P. Morgan’s article, Deflation and the Effect on Benefit Plan Limits, that discusses its impact on both private and public retirement plans.