New Limits announced for Retirement Accounts
The IRS announced the new limits for retirement accounts for 2020 this month. The limits have been increased each year except this year, as the IRA limits stayed the same while all other increased.
The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is $19,500 for 2020. This is a $500 boost from 2019, which is consistent with previous years.
The catch-up contribution limit for employees age 50 or older is $6,500 for 2020. This comes as a surprise because that’s the first increase since 2015 when the limit rose to $6,000.
Note: Even if you don’t turn 50 until December 31, 2020, you can make the additional $6,500 catch-up contribution for the year.
SEP IRAs and Solo 401(k)s
For self-employed and small business owners, the amount you can save in a SEP IRA or a solo 401(k) is up to $57,000 from $56,000 in 2019. That’s based on the amount you can contribute as an employer, as a percentage of your salary. In addition, the compensation limit went up to $285,000 from $280,000 in 2019.
The limit on SIMPLE retirement accounts went up from $13,000 in 2019 to $13,500 for 2020. The SIMPLE catch-up limit remains at $3,000.
Defined Benefit Plans
For high-earning self-employed personnel, the limitation on the annual benefit of a defined benefit plan went up to $230,000 for 2020.
Individual Retirement Accounts (IRA)
The limit on annual contributions to IRAs remains at $6,000 for 2020, the same as in 2019. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000.
Note: Remember that 2020 IRA contributions can be made until April 15, 2021.
I hoped you enjoyed the quick snapshot of the new limits announced for 2020 retirement accounts. I am disappointed that IRAs didn’t get a $500 boost which has been the trend the last few years. However, an increase overall, especially for 401(k) catch-ups which haven’t seen an increase in 5 years, is fantastic. Happy investing and retirement!