2013 Cost-Of-Living Adjustments

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The Cost of Living Adjustment, or COLA, is pretty much what its name implies -- its the adjustment made to make sure your income stays current with the cost of living. The Internal Revenue Service announced cost-of-living adjustments affecting dollar limitations for pensions plans and other retirement-related items for tax year 2013. In general, many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index.

These limits are either based on the calendar year, Plan Year, or Limitation Year. Your Plan document will define the years for your Plan. For most plans, all of those defined years are the same (e.g. all 1/1/13 - 12/31/13). Unless otherwise noted below, the dollar limit is based on the Plan Year and is in effect at the beginning of the

Plan Year that falls within the applicable tax year.

Please note: If you have not elected to utilize Deferral provisions in your Plans document, those limits do not apply to your Plan.

For a complete list of limits, and further explanation, please feel free to visit the IRS and SSA websites at www.irs.gov and www.ssa.gov..

How the Cost of Living Adjustment Is Calculated:

COLA is based on the Consumer Price Index (CPI). Thats the Federal Governments official measurement of inflation. Specifically, it measures changes in the prices of 80,000 goods and services. COLA is triggered when prices go up. Its rare to see COLA used to reduced wages or benefits if prices drop, a situation known as deflation. Find out more about how the Consumer Price Index is calculated.

TOPICS: 401(k) rollovers General retirement planning Small Business Owners Benetrends business Consumer Price Index cost-of-living index Internal Revenue Service Len Fischer

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