New 401(k) and Social Security Tax Limit
Another tax topic for the day: IRS just released a bunch of magin numbers that applies to a variety of retirement plans for 2005. For a quick summary, check out this beautiful table at Employee Benefits Legal Resource Site.
A couple of key numbers that may affect many people:
First, the maximum annual contribution to 401(k) is raised from $13,000 in 2004 to $14,000 in 2005. This means people can put an additional $1,000 to the retirement plan and postpone income tax. (I always think 401(k) is a nice tool that allows you to time your tax; I will be glad to contribute to the full maximum next year.)
Second, the maximum income subject to social security tax is raised from $87,900 to $90,000 to reflect cost inflation. At the flat tax rate of 6.20%, this means people earning more than $90,000 will pay out $130 more in FY05. This is almost a 2.4% increase -- I am not sure how many people have earned this much salary increase this year.
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