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Social security and retirement. The bad; the good.

January 30th, 2013

First the bad – For those of you who have enjoyed financial success and either have significant self-employment income or are receiving a good salary, you should be aware that the maximum amount of earnings subject to self-employment taxes or social security tax is increasing to $113,700 for 2013, up from $110,100. This does not affect the Medicare tax which of course never stops. Many small business owners are aware of techniques to avoid hitting this max. If in doubt, contact your tax advisor.

Now the good, or at least the better,

For those approaching or having reached retirement age, Social Security benefits have increased from 2012 levels by 1.7% for 2013. The law requires this COLA.

Concurrently, the IRS announced the changes to dollar limits for contributions to the various qualified retirement plans for 2013. For example, for the typical profit sharing plan, the maximum has increased $1,000 to $51,000. You should talk to your tax advisor if any of these limits could affect your 2013 budgeting.