As we reach the end of 2019, it’s time to start thinking about your finances for 2020. Many employers will begin open enrollment over the next few weeks, and this is a great time to review your retirement plan contributions.
The IRS announced earlier this month that employees will be able to contribute up to $19,500 to their 401(k) plans in 2020. They also raised the catchup limits (for those over age 50) from $6,000 to $6,500. Lastly, the 2020 contribution limitation for SIMPLE retirement accounts increased to $13,500, up from $13,000. Note that the annual contribution limit to an IRA remains unchanged at $6,000.
Summary of Changes for 2020
The new 2020 retirement contribution limits are as follows:
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If, during the year, either the taxpayer or spouse was covered by a retirement plan at work, the deduction may be reduced (phased out) or 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 taxpayers making contributions to a traditional IRA in 2020:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000.
- 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.
- 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.
- 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 in 2020 are:
- For single taxpayers and heads of household, $124,000 to $139,000.
- For married couples filing jointly, the income phase-out range is $196,000 to $206,000.
- 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 2020 income limits for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) are:
- $65,000 for married couples filing jointly, up from $64,000
- $48,750 for heads of household, up from $48,000
- $32,500 for singles and married individuals filing separately.
It is important to note that the IRS has raised the 401(k) and 403(b) contribution limits in 4 of the last 5 years. These have been fantastic opportunities to contribute more into these retirement investment vehicles. So please make sure to adjust your recurring contribution amounts to better take advantage of this increase in limit. If you have any questions, feel free to reach out to us!
Source: Internal Revenue Service Notice 2019-59