Fri, October 16, 2009
2010 Limits for Retirement Plans, Social Security Wage Base Announced
Despite a decline in the Consumer Price Index (CPI), major retirement plan limits remain unchanged.
As I noted last month, there has been some uncertainty around whether the IRS might reduce defined contribution plan limits next year since the CPI at the end of the third quarter was actually below last year’s level. There is good news in that the IRS is not reducing the allowable contribution limits for any retirement plans.
The maximum amount that can be saved through “elective deferral” (employee contributions) to 401(k), 403(b), and similar plans in 2010 will still be $16,500. SIMPLE IRA compensation deferrals remain capped at $11,500. Individuals reaching the age of 50 during the year will still be able to make “catch-up” contributions of up to $5,500.
The Social Security administration has also announced that the 2010 Social Security wage base, the maximum income on which Social Security tax will be applied, remains unchanged at $106,800. Although average wages actually increased in the last year, there is a statute that says in years when Social Security benefits do not receive a Cost-of-Living Adjustment (COLA), the wage base cannot be increased.
The Social Security tax is technically known as the Old Age, Survivors and Disability Insurance (OASDI) tax. The other tax associated with the Federal Insurance Contributions Act (FICA) is the Hospital Insurance or Medicare tax. While there is a cap on the level of wages to which OASDI is applied, there is no wage maximum for the Medicare tax. The FICA tax rate for employees and employers is 7.65% each—6.2% for OASDI and 1.45% for HI. For the self-employed, the FICA tax is 15.3%—12.4% for OASDI and 2.9% for HI.