PERSONAL FINANCE

Hopefully the economic downturn hasn’t taken all your extra cash, because the government says it will let you put an additional $1,000 away in your retirement account next year.

The Internal Revenue Code limits the benefits and contributions to many retirement plans and requires the IRS to re-evaluate the limits annually and make adjustments when a cost-of-living increase is justified.

Retirement plan computations are indexed to inflation and as a result didn’t change from 2007 to 2008, but they will change for the 2009 tax year, the IRS says.

The amount you can put in your 401(k) and other qualified plans in 2009 will increase to $16,500, from $15,500.

Catch-up contributions — the amount of additional money you can put in your account if you’re 50 and older — was increased by $500, to $5,500. Those in that age group can put away up to $22,000 next year.

Highly compensated workers: One figure the IRS releases each October is the salary level that defines a highly compensated employee. It was increased $5,000, to $110,000, for next year.

Businesses care about this because federal law requires retirement plans to be fairly balanced between highly compensated workers and those making less. Such laws were implemented to keep retirement plans from being designed to favor executives and other highly paid workers.

It’s not uncommon for highly paid workers to be limited to $6,000 or $7,000 in contributions while co-workers who make less can contribute the full $16,500 next year.

Self employed: For self-employed individuals with a simplified employee pension — an SEP plan — or a solo 401(k) designed for independent contractors such as consultants or real estate agents and sole proprietors, the contribution limit increases $3,000, to $49,000.

Associated Press