The U.S. Social Security Administration has announced several 2020 benefit amounts that increase according to a cost-of-living-adjustment (COLA) formula. The adjustment that applies to tax-advantaged retirement savings arrangements is the Social Security taxable wage base (TWB), which will rise from $132,900 to $137,700 for 2020.
The TWB is the income level above which amounts are not withheld from earnings for Social Security benefit purposes. The TWB is used in certain retirement plan allocation formulas, notably for the allocation of some profit sharing and simplified employee pension (SEP) plan contributions. Such formulas are often referred to as “integrated” or “permitted disparity” formulas. Their use allows an additional benefit based on employee compensation above an integration level; one of the permitted integration levels is the Social Security TWB.
Potentially significant for other savings arrangements is the fact that IRS COLA-adjusted amounts for IRAs and employer-sponsored retirement plans for the coming year are often released very shortly after the Social Security Administration announces the TWB.