The Internal Revenue Service has updated retirement plan contribution limits for 2020 to benefit taxpayers across the board. The new guidelines affect not just 401(k)s but several other account types as well.
Increased: 401(k) Contribution Limits
The maximum contribution to a 401(k), 457, 403(b), and Thrift Savings Plan will increase from $19,000 to $19,500, starting in 2020. Elections to a 401(k) plan can be made any time during the year, so think about reevaluating your contribution amount.
If you are 50 years old or older, from the start of 2020 you will be able to contribute an extra $500 to your workplace plan, as the limit increases to $6,500. Employees who reach their 50th birthday before December 31st, 2020, are eligible for the new limit.
Increased: SIMPLE Plan Contribution Limits
SIMPLE retirement plan annual contribution limits have increased by $500 to $13,500. The catch-up amount remains $3,000.
Increased: SEP IRA Contribution Limits
Although no catch-up contributions apply to SEP IRAs, the IRS has added $1,000 to the old contribution limit, bringing it to $57,000. The simultaneous limit of 25% of compensation still applies.
To keep up with inflation, the government has also increased the SEP IRAs old compensation limit by $5,000 to a new maximum to $285,000.
Unchanged: Roth and Traditional IRA Contribution Limits
The contribution limits for Roth and traditional IRAs (not SEP or SIMPLE ones) remain at $6,000 for 2020. The $1,000 catch-up amount is also unchanged.
Watch our video for more information on choosing between pre-tax vs Roth.
Increased: Roth and Traditional IRA Phase-Outs
For married couples filing jointly, the phase-out range for a traditional IRA is $104,000 to $124,000. This is an increase of $1,000 from 2019. These numbers assume that the spouse who makes the IRA contribution also has a retirement plan at work. If the contributing spouse does not have a workplace plan, but the other spouse does, the income limits get a $3,000 boost each to a combined total of $206,000.
If you plan to put some money into a Roth IRA in 2020, the maximum income you can have is going up. Under the federal government’s new rules, the range will increase by $3,000 to $206,000 for married couples. For heads of household and single filers, the range is up to $139,000.
New Maximum: Defined Benefit Plans
In 2020 the yearly benefit limit for a defined benefit plan will get a $5,000 boost to a maximum of $230,000. These older style workplace retirement vehicles guarantee a benefit after work rather than a contribution during work.
Do you have any questions?
If you need any help charting a course for retirement, contact a Glass Jacobson financial planner today.
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