The IRS announced the increases as part of an annual adjustment for cost-of-living increases as provided in the Internal Revenue Code. According to IRS Notice 2019-59, employees participating in 401(k) plans may contribute up to $19,500 in 2020, up from $19,000 for this year. This increase also applies to 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan. In addition, the catch-up contribution limit available to employees aged 50 or older will increase from $6,000 to $6,500 in 2020.
The limit on the annual benefit for a participant under a defined benefit plan will increase from $225,000 to $230,000 in 2020. In addition, the limit on the annual benefit for a participant under a defined contribution plan has increased from $56,000 to $57,000 for 2020.
The IRS also announced increases in phase-out income ranges for determining a taxpayer’s eligibility to deduct contributions made to Individual Retirement Accounts (“IRAs”). If a taxpayer meets certain conditions, such as annual income limits, the taxpayer can deduct contributions made to traditional IRAs. However, these deductions are phased out depending on the annual income of a taxpayer, or a taxpayer’s spouse, who is covered by a retirement plan at work. For example, the phase-out income range for a single taxpayer covered by a workplace retirement plan ranges from $65,000 to $75,000 for 2020, which is an increase from $64,000 to $74,000 for 2019. The phase-out range has also increased for married couples filing jointly when the spouse making contributions to the IRA is covered by a workplace retirement plan. The income range is $104,000 to $124,000 for 2020, which is an increase from $103,000 to $123,000 for 2019. For a full list of phase-out income ranges for taxpayers who take this deduction, Notice 2019-59 can be accessed at the bottom of this page.
In addition, the income limit for married couples filing jointly who take the Retirement Savings Contributions Credit is $65,000 for 2020, which is an increase from $64,000 for 2019. For heads of household, the income limit is $48,750 for 2020. Also, for single taxpayers or married individuals who file separately, the income limit for this tax credit is $32,500 for 2020.
One limit that will not change in 2020 is the limit on annual contributions to an IRA, which remains at $6,000. Moreover, the IRA catch-up contribution limit remains at $1,000 for individuals aged 50 or older.
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