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How is the IRA limit determined? Social Security gets an annual cost of living adjustment, why aren't these adjustments carried over to the IRA limits as well?

The last time the IRA limit was increased was 2013, and it was increased by $500. Was this a random amount or was there reasoning behind the amount of the increase?

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The adjustment is made by the IRS, at the direction of the US Code allowing for this deduction. Title 26, section 219 regulates the deductions related to retirement savings, and 219 (b) specifies maximum deduction amounts.

Specifically, from Section 219 (b)(5):

(C) Cost-of-living adjustment

(i) In general

In the case of any taxable year beginning in a calendar year after 2008, the $5,000 amount under subparagraph (A) shall be increased by an amount equal to—

(I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2007” for “calendar year 1992” in subparagraph (B) thereof.

(ii) Rounding rules

If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next lower multiple of $500.

And from the referenced Section 1(f)(3):

(3) Cost-of-living adjustment

For purposes of paragraph (2), the cost-of-living adjustment for any calendar year is the percentage (if any) by which—

(A) the CPI for the preceding calendar year, exceeds (B) the CPI for the calendar year 1992.

(4) CPI for any calendar year

For purposes of paragraph (3), the CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on August 31 of such calendar year.

(5) Consumer Price Index

For purposes of paragraph (4), the term “Consumer Price Index” means the last Consumer Price Index for all-urban consumers published by the Department of Labor. For purposes of the preceding sentence, the revision of the Consumer Price Index which is most consistent with the Consumer Price Index for calendar year 1986 shall be used.

So, the answer to your question is ultimately that the CPI has not increased sufficiently to go beyond the next multiple of $500. It could well be at $5950, but the law would still call that $5500 based on the round-down rule.

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