Low inflation keeps pension-related amounts unchanged for 2010

The near absence of inflation over the past 12 months leaves many pension-related amounts unchanged for 2010, the IRS has announced. The announcement reflects the amounts, for example, that individuals can contribute to their 401(k)s and other retirement savings arrangements. In related news, the Social Security Administration (SSA) announced that the Social Security wage base will also remain unchanged for 2010.

Inflation adjustments

Every autumn, the IRS adjusts pension-related amounts for inflation. The IRS compares the third quarter Consumer Price Index (CPI-U) against the third quarter CPI-U of the previous year. Because of deflation within these benchmarks, there had been some concern that the pension-related amounts would decrease for 2010. The IRS allayed these concerns when it announced the pension-related amounts would remain unchanged for 2010.

Retirement plans

Many individuals participate in employer-sponsored defined contribution or defined benefit plans. There are important limits in the Tax Code.

The limits on elective deferrals to 401(k)s, 403(b)s, certain 457s, and the federal government's Thrift Savings Plan remain unchanged at $16,500 for 2010. The limit on annual additions to defined contribution plans also remains unchanged at $49,000 for 2010. The annual benefit limitation under a defined benefit plan, the maximum amount a plan may pay a participant each year, also remains unchanged at $195,000 for 2010.

Catch-up contributions

If you are age 50 or older, you may be eligible to make catch-up contributions to IRAs, 401(k)s and other savings arrangements. The catch-up amount for IRAs remains unchanged for 2010 at $1,000.

The catch-up amount for 401(k)s, 457s, 403(b)s, and SEPs also remains unchanged at $5,500 for 2010. The $2,500 catch-up amount for SIMPLE plans is not indexed for inflation.

Social Security

The Social Security wage base is the maximum amount of earnings subject to Social Security tax. For 2009, the Social Security wage base is $106,800. The wage base remains unchanged for 2010.

Social Security benefits also will remain unchanged for 2010. To help retirees, the Obama administration has proposed one-time payments of $250 in 2010. However, Congress would have to approve these special payments.

Many seniors, especially in today�s recession, are still working or are looking for work. Several years ago, Congress eliminated the retirement earnings test exempt amount (the point at which retirees begin to lose benefits in conjunction with their receipt of additional earnings) for individuals age 65 through 69. However, it remains in effect for individuals under full retirement age and a modified test applies for the year in which an individual reaches full retirement age.

For 2010, the earnings limit for individuals who are younger than full retirement age (age 66 for people born in 1943 through 1954) remains unchanged at $14,160. The earnings limit for individuals turning 66 in 2010 remains unchanged at $37,680.

If you have any questions about the 2010 pension-related amounts or Social Security, please contact our office.