As we head toward the end of the year, there are many year-end planning items to consider including reviewing that the maximum contribution is made to your retirement accounts. While focusing on all your year-end tasks, you will not want to forget about an important planning item for the beginning of 2020; resetting contribution rates for the new year.
The IRS announced cost of living adjustments last week for retirement plan contributions. The good news is that you will be able to save more for retirement! Contribution limits are increasing in 2020 for defined contribution plans, defined benefit plans, elective deferrals to 401k and 403b accounts, and SIMPLE IRAs. Another big change is the limit for catch-up contributions for those who are over age 50. The limit has been stagnant at $6,000 since 2015, but will increase to $6,500 in 2020. The one contribution limit that did not change is for IRAs and Roth IRAs, which remains at $6,000.
The amount you can contribute to your 401k or workplace retirement account through elective deferrals increased from $19,000 to $19,500. The total contribution amount for other defined contribution plans (SEP IRAs, Solo 401ks, and after-tax contributions to 401ks) increased from $56,000 to $57,000 for high earners and dedicated savers. SIMPLE IRA contributions limits increased to $13,500 from $13,000 in 2019.
In addition to the increased amounts, the income phaseout range increased for eligibility to make Roth IRA contributions. In 2019, the income phaseout range for Roth IRA contributions was $193,000-$203,000 of modified adjusted gross income (for those Married Filing Jointly), but now the range is $196,000-$206,000. Similarly, the income phaseout was increased for those making deductible IRA contributions.
Below is a chart that outlines all the changes announced by the IRS. Even If these limits seem unattainable, it is important to review your contribution rate every year to see if you can increase your savings. If your employer has a company match, make sure to contribute enough to take advantage of the free money. If you have any questions about the new contribution limits and how it affects you, please don’t hesitate to contact a CERTIFIED FINANCIAL PLANNER™ at Thrive Wealth Management.