The IRS recently released contribution limit and income limit updates that will go into effect for retirement savers in 2020. While the amounts you can contribute to IRAs and Roth IRAs have not increased, there are some important increases for your employer retirement plans to highlight, allowing you to save even more for retirement.

IRA and Roth IRAs Contributions

In 2020 the annual contribution limit for traditional IRAs and Roth IRAs are staying the same as 2019.

· Under Age 50: You can contribute up to $6,000

· Over Age 50: You can contribute an additional $1,000 catch up contribution making your total allowable contribution $7,000 for the year

Keep in mind you can contribute a combined total of $6,000 ($7,000 if 50+) to either an IRA or Roth IRA or a combination of the two as long as you don’t exceed the annual maximum.

IRA and Roth IRA Income Limits

When you contribute to an IRA you can take a deduction on your taxes for the full amount of your contribution as long as your income (adjusted gross income) is under a certain amount. Each income limit has increased by $1,000 over the 2019 income thresholds.

To see if you’re eligible to deduct the full amount you can check out the income phase-out levels here:

IRA Deduction if you ARE covered by a Retirement Plan at Work

IRA Deduction if SEP-IRA

When you make contributions to a Roth IRA you do not get to take a tax deduction on your taxes for your contribution. The trade-off is that unlike traditional IRAs, later in life (after age 59 1/2), when you take a withdrawal from your Roth IRA you will not pay income taxes on any of the earnings in the account. This is a very appealing option for a lot of retirement savers and for that reason the IRS has limited the amount of income a household can make in order to participate. In 2020, the adjustment to the income thresholds are in favor of Roth IRA savers.

To see if you’re eligible to contribute to a Roth IRA you can check the income phase-out levels here:

Roth IRA Income Phase Out Chart

Increased Contributions for workplace retirement plans

401(k), 403(b) and 457 Plans

Annual contribution limits for employees who participate in 401(k), 403(b), and most 457 plans are eligible to put away $19,500 in 2020. This is a $500 increase from 2019. The catch-up contributions for employees that are 50 or older also increased by $500 – from $6,000 in 2019 to $6,500 in 2020. That means an employee that is age 50+ can contribute up to $26,000 in their 401k next year!

The overall limit on contributions to workplace retirement plans has also increased in 2020. The maximum allowed to be contributed to all retirement plans has increased from $56,000 to $57,000. This is an aggregate amount of participant contributions (but no catch-up contributions), employer matching contributions and employer non-elective contributions. If your employer offers the ability to make after-tax 401k contributions this is where you can supercharge your retirement savings.

SIMPLE IRAs

If your employer offers you a SIMPLE IRA plan, you can now put in up to $13,500 in 2020. This went up by $500 from 2019. The catch-up contribution amount did not change and is still $3,000.

SEP-IRAs & Solo 401ks

Self-employed and small business owners can also save more for retirement in 2020. The overall contribution limit has increased to $57,000 from $56,000 in 2019. SEP-IRA contributions are only made by the employer and are limited to 25% of the employee’s annual salary up to the limit. Solo 401k plans follow the same rules as SEP-IRA for the employer’s portion of the contribution but unlike SEP-IRAs, you can contribute the maximum $19,500 as your employee contribution. This is a great way for solo business owners to save a larger part of their business income toward retirement.

For more information on ways you can maximize your retirement savings in 2020 please reach out to us directly so that we can help you assess your needs and offer personalized solutions to help you achieve your financial goals.

Please contact me at 913-871-7980 or by email to discuss your financial planning and investment management needs.

Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

Retirement Plan contributions limits and changes for 2020