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IRS increases 401(k) contribution limits for 2020

The Internal Revenue Service said Wednesday that employees who invest in 401(k) retirement plans will be able to contribute up to $19,500 next year, as part of its annual inflation adjustments.

The IRS announced the new limit, along with other changes, in Notice 2019-59. The guidance provides cost‑of‑living adjustments for the dollar limitations for pension plans and other retirement-related items for tax year 2020.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government's own Thrift Savings Plan is increasing from $19,000 to $19,500 next year.

The IRS headquarters in Washington
The IRS headquarters in Washington.

Meanwhile, the catch-up contribution limit for employees ages 50 and older who participate in these plans is increasing from $6,000 to $6,500.

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

The income ranges for determining eligibility to make deductible contributions to traditional individual retirement arrangements, to contribute to Roth IRAs and to claim the Saver's Credit have all increased for next year.

Taxpayers are able to deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction can 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.) The phase-out ranges for 2020 are:

  • For single taxpayers covered by a workplace retirement plan, the phase-out 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.

The income phase-out range for taxpayers who make contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. 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 $0 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, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

However, the limit on annual contributions to an IRA will stay unchanged at $6,000. The additional catch-up contribution limit for individuals ages 50 and over isn't subject to an annual cost-of-living adjustment and remains $1,000.

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