How much can I save in 2010?

As you may know, federal tax law limits how much you can save for retirement. There are more than three dozen tax benefits that the IRS reviews and may adjust every year to keep up with inflation. When the cost of living goes up, so do the limits.

Over 2009, we experienced a “deflation” rather than an inflation (meaning the cost-of-living index for the quarter ended September 30, 2009, was actually less than the cost-of-living index for the quarter ended September 30, 2008). As a result, the IRS has announced that most of its limits will remain the same in 2010 as they were in 2009.

In 2010, you can contribute up to $16,500 tax deferred in a 403(b) Smart Account (as long as your total retirement contributions for the year are less than what you earn).

If you are age 50 or older, or if you turn 50 in 2010, you can contribute $5,500 tax deferred above the basic limit, for a total of $22,000 ($16,500 + $5,500).

If you qualify for the 15+ Years of Service Catch-Up, you may add $3,000 tax deferred to your basic limit, for a total of $19,500 ($16,500 + $3,000).

Your total retirement contribution limit (both tax-deferred and after-tax) for 2010 will stay at $49,000 for 2010. If you are age 50 or over, or if you turn 50 in 2010, that extra $5,500 tax deferred limit increases your total limit to $54,500.

These amounts might seem like a lot, especially if you are young and not yet at the peak of your earning power. Maxing out your 403(b) Smart Account contributions at this point in your career might be a stretch, but you can always set it as a long-term goal. As your salary increases throughout your career, make it a habit to save as much as you can, bringing you closer and closer to that annual limit.

Using our Contributions Limit Worksheet, you can see how much you can contribute.

Most financial planners agree that your total retirement savings for every year should be between 15% and 20% of your salary. Subtract from those percents the amounts you and your YMCA already contribute to the Retirement Plan to find out how much extra you need to save to be on target with what the experts recommend.

However much you’re saving now, make it a goal to, someday, max out your 403(b) Smart Account savings.

You can start 403(b) Smart Account contributions at any time. You can change the amount whenever you like and stop contributions whenever you like. Just fill out the Voluntary Contributions form and return it to whoever administers the Retirement Plan at your YMCA.

Some limits that did increase are those used in determining the retirement savings contribution credit, known as the Saver’s Credit, which will help you when you file your taxes for 2010. This credit is a great benefit for participants who save money in a 403(b) Smart Account.

To qualify for this credit, you must be at least 18 years old, not a dependant or full-time student, and have a filing status and AGI of:

Single with income up to $27,750
Head of Household with income up to $41,625
Married Filing Jointly, with incomes up to $55,500

The Saver’s Credit can be up to $1,000, or up to $2,000 if filing jointly. It is calculated based on your income, and how much you save.

For taxable years beginning in 2010, the term "high deductible health plan" means:

For single coverage: Annual deductible is not less than $2,000 and not more than $3,000. Annual out-of-pocket expenses can not be more than $4,050.
For family coverage: Annual deductible that is not less than $4,050 and not more than $6,050. Annual out-of-pocket expenses can not be more than $7,400.

For the full announcement from the IRS, click here.