The Internal Revenue Service issued cost-of-living adjustments (COLAs) for benefits under qualified and other tax-favored retirement plans. Internal Revenue Code section 415 provides for dollar limitations on benefits and contributions and requires the IRS commissioner to annually adjust these limits for COLA increases. There is a lull in indexing most of the dollar limits due to a very low rate of inflation over the past few years and to the amendments passed since 1994 to slow the growth of indexing.
Effective January 1, the maximum annual payout from a defined benefit plan at the Social Security normal retirement age under IRC section 415(b)(1) (A) is $130,000, up from $125,000.
Social Security Changes
Based on a recent increase in the consumer price index, the Social Security Administration announced that recipients of Social Security and Supplemental Security Income (SSI) benefits will receive a 2.1% COLA for 1998, down from 2.9% in 1997.
The automatic increase is the lowest since December 1986 when beneficiaries received a 1.3% increase. Social Security Commissioner Kenneth S. Apfel said the low increase confirms that inflation has remained under control. "Low inflation is good for America, particularly for many Social Security beneficiaries with limited incomes," said Apfel.
Other 1998 inflation-adjusted dollar tests and limits for Social Security benefits include
- A taxable earnings maximum of $68,400 for the Social Security tax, up from $65,400 in 1997.
- No taxable earnings maximum for Medicare. The maximum was eliminated by the Omnibus Budget Reconciliation Act of 1993.