Retirement plan contribution limits are adjusted for inflation each year. Nearly all of the dollar limits currently in effect for 2019 will experience minor increases for 2020. The Internal Revenue Service announced that employees in 401(k) plans will be able to contribute up to $19,500 next year (see Notice 2019-59 posted on IRS.gov). This guidance provides cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.
Changes for 2020
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased from $19,000 to $19,500.
The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500. (If you are over age 50, you have extra savings opportunities and can contribute up to $33,000 in these tax-advantaged accounts for 2020.)
The limitation regarding SIMPLE retirement accounts for 2020 is increased from $13,000 to $13,500.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver's Credit all increased for 2020.
If your employer allows after-tax contributions or you’re self-employed, you can save even more. The overall defined contribution plan limit moves up to $57,000, from $56,000.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020:
For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $196,000 and $206,000, up from $193,000 and $203,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is:
$124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000.
For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000.
The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is:
$65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and
$32,500 for singles and married individuals filing separately, up from $32,000.
Key limit remains unchanged
The limit on annual contributions to an IRA remains unchanged at $6,000.
The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Saver’s Credit Income Limit
The income limits for receiving a Retirement Savings Contributions Credit (“Saver’s Credit”) will increase in 2020. For married filing jointly, it will be $38,500 in 2019 and $39,000 in 2020 (50% credit), $41,500 in 2019 and $42,500 in 2020 (20% credit), and $64,000 in 2019 and $65,000 in 2020 (10% credit). The limits for singles will be at half of the limits for married filing jointly, at $19,250 in 2019 and $19,500 in 2020 (50% credit), $20,750 in 2019 and $21,250 in 2020 (20% credit), and $32,000 in 2019 and $32,500 in 2020 (10% credit).
Keep in mind, employer match or profit-sharing contributions aren’t included in these limits. 401k and 403b share the same limit. The 457 plan limit is separate. You can contribute to both a 401k/403b plan and a 457 plan.
Plan sponsors can contact https://www.rothmeyerrothmeyer.com/ for assistance with updating payroll and plan administration systems for the 2020 adjustments and incorporating the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.