The Social Security Administration (SSA) announced key numbers that affect workers and retirees for 2021 – a substantial increase in the taxable wage base for workers and a minimal increase in benefits for retirees. The Social Security Wage Base, which is the maximum amount of earnings subject to Social Security tax, will rise 3.7% to $142,800 up from $137,700 this year. That means the maximum Social Security tax per worker making at least $142,800 will be $17,707.20 – or a maximum $8,853.60 withheld from a highly paid employee’s 2021 paycheck. Workers and their employers each pay 6.2% of the Social Security tax; the self-employed pay both sides of the tax.

For retirees, a key number is a cost-of-living adjustment (COLA). For 2021, the SSA announced a 1.3% increase to monthly Social Security and Supplemental Security Income benefits. This is good news for the nearly 70 million Americans currently receiving benefits, though this ties for the second-lowest increase ever, trailing only the 0.3% increase passed along in 2017. For the average retiree, that translates to about $20 more a month ($1,543 annually) while the average benefit for a retired couple will grow $33 a month ($2,596 annually).

The Treasury Department also published inflation-adjusted figures for retirement account savings effective January 1, 2021: 401(k) and 403(b) limits remain the same; traditional IRA contribution limits stay the same; but maximum contributions from all sources (employer and employee combined) will rise by $1,000.

The amount you can contribute to your 401(k) or similar workplace retirement plan will once again top off at $19,500. The catch-up contribution limit – for employees turning 50 or older anytime in 2021 – will remain at $6,500. The contribution amount for individual retirement accounts (IRAs) also remains the same at $6,000, with a $1,000 catch-up limit if you’re 50 or older.

Following is a table highlighting some common retirement plan limitations:

The Saver’s Tax Credit for low to moderate-income workers will reflect modest adjustments as well. The Saver’s Credit is a tax break that’s available to many people with modest incomes, offering a way for savers to make their money work harder for them. The credit is between 10%-50% of the individual’s eligible contribution up to $2,000. The limit for 2021 is $33,000 for singles, $49,500 for head of household, and $66,000 for married couples filing jointly.

Should you have any questions regarding the various limitations that apply to retirement plans, including some that are not included in the above table, please contact our Retirement Plan Services Team.