The Internal Revenue Service announced cost-of-living adjustments on the dollar limitations for pension plans and other items in tax year 2009, even as Social Security benefits are expected to rise next year.
The Social Security Administration said benefits would climb 5.8 percent in 2009 as a result of cost-of-living adjustments, the biggest jump since 1982. Average monthly Social Security benefits for retired workers will rise $63 from $1,090 to $1,153.
"This year's increase is largely driven by an increase in energy and food costs," said CCH analyst Avram Sacks.
Cost-of-living increases are also affecting pension plan limitations. Section 415 of the Tax Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the IRS commissioner annually adjust the limits for cost-of-living increases.
Many pension plan limitations will change for 2009 because the increase in the cost-of-living index met statutory thresholds that trigger their adjustment. For others, however, the limitation will remain unchanged. For example, the limitation on the exclusion for elective deferrals will increase from $15,500 to $16,500. This limitation affects elective deferrals to 401(k) plans and to the federal government's Thrift Savings Plan, among other plans.
Effective Jan. 1, 2009, the limitation on the annual benefit under a defined benefit plan will increase from $185,000 to $195,000. The limitation for defined contribution plans will increase from $46,000 to $49,000.
Revenue Procedure 2008-66 provides additional tax items adjusted for inflation for tax year 2009, including itemized deductions, tax rate tables, earned income tax credit limits and many others.
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