401(k) contribution limit increases to $19,500 for 2020; catch-up limit rises to $6,500

25 Nov 401(k) contribution limit increases to $19,500 for 2020; catch-up limit rises to $6,500

WASHINGTON — The Internal Revenue Service announced that employees in 401(k) plans will be able to contribute up to $19,500 next year.  The IRS announced this and other changes in Notice 2019-59, posted on IRS.gov.  Click here for notice

This guidance provides cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.

Highlights of 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.

The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.

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.

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.) Click here for the phase-out ranges for 2020 and additional information