Annual COLAs raise Social Security FICA wage base, retirement savings contribution/withdrawal levels

The Social Security Administration announced that Social Security and Supplemental Security income benefits will increase 5.8 percent in 2009, the largest increase since 1982. During the same week, the IRS also announced COLA increases for a variety of retirement plan contribution and distribution dollar limitations.

Social Security benefits. The Social Security Administration (SSA) has reported that the average monthly benefit amount for all retired workers will rise from $1,090 to $1,153. The maximum monthly Social Security benefit for an individual retiring at full retirement age will increase from $2,185 to $2,323.

FICA wage base. The SSA also reported that the maximum amount of earnings subject to Social Security FICA tax will increase from $102,000 in 2008 to $106,800 in 2009. As a result, approximately 11 million individuals are expected to pay higher taxes, the SSA estimated. The rates for Old-Age, Survivors and Disability Insurance (OASDI) and Medicare Hospital Insurance (HI) taxes will remain unchanged at a combined 7.65 percent in 2009.

Nanny tax. The SSA has further calculated that cash amounts paid for domestic services in the employer's private home will not be not subject to FICA taxes if less than $1,700 during 2009.

Retirement plan COLAs. IRS also has set the 2009 COLA limits for qualified retirement plans. Inflation over the past year has caused a big jump in many of the 2009 amounts. For example, in 2009, individuals age 50 or older can contribute $22,000 to a 401(k) plan; a significant leap over the $20,500 allowed in 2008. Regular 401(k) contributors, too, will see a dramatic increase from $15,500 to $16,500, the first jump in two years (because of complicated rounding rules in the Internal Revenue Code). Also greatly expanded is the overall limit on defined contribution plans (the 415(c) limit) of $49,000 in 2009, versus the $46,000 allowance for 2008.

For other increased inflation-adjusted amounts that may fit your particular circumstances, please feel free to call this office.