15 Nov 2020 Retirement Plan Limits
Some retirement plan contribution limits are increasing in 2020. Periodically the Treasury Department raises contribution limits to keep pace with inflation. This is good news for those that like to max out their savings for retirement. For 2020, this includes almost all types of retirement accounts, with the notable exception of Traditional and Roth IRA contribution limits which are not increasing.
Employee salary deferrals for 401(k) plans are increasing again in 2020 to $19,500 up from $19,000 in 2019. Catch up contributions are increasing to $6,500 in 2020 allowing those who are 50 or over to contribute a total of $26,000 in salary deferrals. This is the first increase to catch up contributions since 2015.The total amount that can be contributed for a participant in 2020 is increasing to $57,000 up an additional $1,000 from 2019. This includes Solo or Individual 401(k)s as well. These limits are for both pre-tax and Roth contributions combined.
The amount an employer can contribute to a SEP IRA is increasing in 2020 to $57,000. This is based on a maximum of 25% contribution of the employee’s salary. The compensation limit used to calculate the contribution is also increasing to $285,000.
SIMPLE IRA deferral limits are increasing to $13,500 in 2020. This is up from $13,000 in 2019. The catch-up contributions for SIMPLE IRAs are not increasing in 2020. Those that are 50 and over can contribute an additional $3,000 in 2020 to their SIMPLE for a total of $16,500.
Traditional & Roth IRAs
Those contributing to a Traditional IRA or a Roth IRA will be able to contribute a total of $6,000 in 2020 which is unchanged from 2019. The catch-up contribution amount of $1,000 is not inflation adjusted and remains the same for 2020 as well, making the total $7000 for those 50 and older.
There are some changes to the income phaseouts for IRAs in 2020. If you or your spouse are covered by an employee sponsored retirement plan, such as a 401(k), there are Adjusted Gross Income (AGI) limits to how much you can earn and still be able to deduct your contributions to your Traditional IRA. In 2020, for single filers who are active participants in their employer sponsored plan, the AGI limits are $65,000-$75,000. For those who are married filing jointly, the AGI limits are $104,000-124,000 if the spouse making the contribution is covered by an employer sponsored plan. If the contributor is not covered by a plan but their spouse is, the income phaseouts are between $196,000-206,000 in 2020, which is a $3,000 increase over 2019.
Roth IRA AGI phaseouts are increasing in 2020 as well. For single filers, that AGI phaseout range is $124,000-$139,000 in 2020. If you are married filing jointly, the AGI phaseout for Roth contributions in 2020 is $196,000-206,000. Consult your CPA regarding these AGI limits before contributing.
Health Savings Accounts (HSA)
The amount that you can contribute to an HSA is increasing in 2020 to $3550 for an individual covered by a high deductible health plan and $7,100 for a family plan. This is an increase of $50 and $100 respectively over 2019. The catch-up contribution for those 55 and older remains unchanged at $1000. Be sure that your health care plan is an HSA eligible plan before opening and contributing to an HSA.
For anyone who is maxing out their retirement contributions or looking to minimize their taxes, these increases are good news! As always be sure to check with you CPA and financial advisor/planner before contributing to retirement accounts. If you have any questions about your personal situation, feel free to contact us.