In November 2019, the Internal Revenue Service (IRS) announced the cost of living adjustments for 2020 for most retirement savings plans. However, IRA contribution limits will stay the same. If you plan to make the maximum contributions you can in 2020, here’s what you need to know:
• The limit on annual employee contributions to 401(k)s, 403(b)s, most 457 plans, and the Federal government’s Thrift Savings Plan will rise to $19,500 in 2020, up from $19,000 in 2019.
• The retirement plan ‘catch-up’ provision for savers age 50+ will be $6500 for 2020. Super-savers who want to max their retirement savings contributions can save $33,000 into these tax-advantaged accounts in 2020.
• The limitation regarding SIMPLE retirement accounts for 2020 increases to $13,500 (up $500 from 2019).
If your employer allows after-tax contributions, or you’re self-employed, you can save even more. The defined contribution plan limit moves up to $57,000 in 2020.
• Taxpayers can deduct contributions into a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse were covered by a workplace retirement plan, the deduction may reduce, or phase out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor spouse are covered by a workplace retirement plan, the phase-outs of the deduction do not apply.) Here are the phase-out income ranges for 2020, up slightly from 2019:
• For single taxpayers covered by a workplace retirement plan, the phase-out income 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.
Other income phase-outs to be aware of:
The income phase-out for Roth IRAs is $124,000 to $139,000 for singles and heads of household. For married couples filing jointly, the income phase-out range is $196,000 to $206,000. 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 $1 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, $48,750 for heads of household, and $32,500 for singles and married individuals filing separately.
Even if you’re not able to save the maximum into your retirement accounts, now is a great time to increase your contributions anyway. If you have any questions regarding contribution limits of setting up IRAs or self-employed retirement savings accounts by the end of 2019 to offset your income, contact our office.