On November 6, 2019, the IRS published Notice 2019-59(PDF) that increased the 401k contribution limit to $19,500 for 2020. Each year the Secretary of the Treasury performs a review and determines if changes are necessary to account for cost-of-living adjustments, with decisions normally announced in October or November for the upcoming year. Now is a great time to update your 401(k) withholding to take advantage of the new limits, as well as review your overall retirement progress.
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Summary of Retirement Account Changes for 2020
- The 401k contribution limit increased to $19,500 for 2020 (up from $19,000 in 2019). The contribution limit applies to employees who participate in 401(k), 403(b), most 457 plans, and the Thrift Savings Plan from the federal government.
- The catch-up contribution limit increased to $6,500 for 2020 (up from $6,000 in 2019). The catch up limit is for employees aged 50 and over who participate in these plans.
- The SIMPLE retirement account limitation increased to $13,500 for 2020 (up from $13,000 for 2019).
- The eligible income ranges to make deductible contributions into traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020 – details below.
Traditional IRA Contribution Deduction
Contributions to a traditional IRA can be deducted if they meet certain conditions. Depending on filing status and income, the deduction may be reduced if during the year either the taxpayer or their spouse was covered by a retirement plan at work. (The deduction phase-outs do not apply if neither the taxpayer nor their spouse is covered by a retirement plan at work.) Phase-out ranges for 2020 are as follows:
- If you are a single taxpayer covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000 for 2020 (up from $64,000 to $74,000 in 2019).
- If you are a married couple filing jointly and the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000 for 2020 (up from $103,000 to $123,000 in 2019).
- If you are a married couple filing jointly but the IRA contributor is not covered by a workplace retirement plan and their spouse is covered, the phase out range for the couple’s income is $196,000 to $206,000 for 2020 (up from $193,000 to $203,000 in 2019).
- If you are a married, filing a separate return, and you are covered by a workplace retirement plan, the phase-out range is unchanged and remains $0 to $10,000 for 2020 (this case is not subject to an annual cost-of-living adjustment).
Roth IRA Contribution Phase-out
Contributions to a Roth IRA are subject to the phase-out ranges as follows:
- For taxpayers filing as single or head of household the phase-out range is $124,000 to $139,000 for 2020 (up from $122,000 to $137,000 in 2019)
- For married couples filing jointly, the income phase-out range is $196,000 to $206,000 for 2020 (up from $193,000 to $203,000 in 2019)
- For a married individual filing a separate return who makes contributions to a Roth IRA the phase-out range is unchanged at $0 to $10,000 (this case is not subject to an annual cost-of-living adjustment).
Saver’s Credit Eligibility
Eligibility for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is subject to the following income limits:
- For married couples filing jointly the income limit is $65,000 for 2020 (up from $64,000 in 2019)
- For head of household the income limit is $48,750 for 2020 (up from $48,000 in 2019)
- For singles and married individuals filing separately the income limit is $32,500 for 2020 (up from $32,000 in 2019).
IRA Annual Contribution Limits Remains Unchanged
The IRS did not change the annual IRA contribution limit nor the catch-up contribution limit. The limit on annual contributions to an IRA remains at $6,000 and the additional catch-up contribution limit for individuals aged 50 and over remains at $1,000 (the catch-up contribution limit is also not subject to an annual cost-of-living adjustment).
Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59 (PDF), available on IRS.gov.
Remember that the contribution limits published above are the maximum that you are allowed to contribute from your salary (known as the “elective deferral limit”). Matching contributions from your employer do not count towards these limits. Also, the IRS notice is a summary of the changes, and not a full list of all the restrictions and requirements. For example, there is also a cap on the total amount you can contribute to your 401(k) that considers the combined total from your salary withholding and contributions from employer matching. The total 401(k) contribution limit (from you and your employer) is capped at $57,000 for 2020 (up from $56,000 in 2019). The cap also states that you are not allowed to contribute more than 100% of your compensation.
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