When strategizing your FERS retirement, grasping the implications of the Social Security Maximum Taxable Earnings Cap is paramount, both during your career and post-retirement.
A Primer on the Earnings Cap
The Maximum Taxable Earnings Cap, or wage base, delineates the maximum portion of your earnings subject to Social Security taxes. This threshold, regulated by the OASDI program, typically escalates annually due to fluctuations in the national average wage index.
Significance of the 2024 Tax Limit Increase
For 2024, the maximum earnings subject to Social Security taxes has ascended from $160,200 to $168,600. Consequently, workers will contribute 6.2% of their income to Social Security until their earnings surpass $168,600 in 2024. Earnings exceeding this limit remain untaxed by Social Security. While federal workers contribute 6.2% of their income into Social Security, their agency matches this percentage until their salary surpasses the taxable maximum.
The Implications for Retirement Benefits
Although the heightened tax cap implies increased taxes once earnings reach the threshold, there’s a silver lining. The same annual limit governs the Social Security Administration’s calculation of your retirement benefit. Consequently, high earners may anticipate a larger Social Security payout post-retirement.
Considering the monthly benefits, workers contemplating Social Security filing in 2024 should note that the maximum possible monthly benefit for those retiring at their Full Retirement Age (FRA) stands at $3,822. However, it’s essential to recognize that once Social Security benefits commence, up to 85% of the benefit is subject to federal taxes. This underscores the importance of meticulous tax planning for high earners in retirement.
Seeking Expert Guidance
Given the intricate tax implications, it’s advisable to collaborate with an FRC® trained advisor who can furnish referrals to adept tax professionals. This ensures comprehensive retirement planning tailored to your financial circumstances.
