IRS Releases 2020 Retirement Plan Contribution Limits

On November 6, the Internal Revenue Service (IRS) released Notice 2019-59 announcing cost-of-living adjustments affecting dollar limits for pension plans and other retirement-related items for tax year 2020. Many pension plan limits will change next year because the increase in the cost-of-living index has met the statutory thresholds that trigger their adjustment. Other items, however, will remain the same. The following is a summary of the limits for 2020.
For 401(k), 403(b), and most 457 plans and the federal government’s Thrift Savings Plans:
  • The elective deferral (contribution) limit increases from $19,000 for 2019 to$19,500 for 2020.
  • The catch-up contribution limit for employees aged 50 and over who participate in these plans will increase from $6,000 for 2019 to $6,500 for 2020.
  For individual retirement arrangements (IRAs):
  • The limit on annual contributions will not change for 2020. It remains $6,000.
  • The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment so it remains $1,000 for 2020.
  For simplified employee pension (SEP) IRAs and individual/solo 401(k) plans:
  • Elective deferrals increase to $57,000 for 2020, based on an annual compensation limit of $285,000 (up from the 2019 amounts of $56,000 and $280,000).
  • The minimum compensation that may be required for participation in a SEP remains unchanged at $600 for 2020.
  For savings incentive match plan for employees (SIMPLE) IRAs:
  • The contribution limit on SIMPLE IRA retirement accounts increases to $13,500 for 2020 (from $13,000 for 2019).
  • The SIMPLE catch-up limit remains unchanged at $3,000 for 2020.
  For defined benefit plans:
  • The basic limitation on the annual benefits under a defined benefit plan is increased to $230,000 for 2020 (from $225,000 for 2019).
  Other changes:
  • The threshold for determining “highly compensated employees” increases to $130,000 for 2020 (from $125,000 for 2019).
  • The threshold for officers who are “key employees” in a top-heavy plan increases to $185,000 for 2020 (from $180,000 for 2019).
  • Social Security cost of living adjustment: In a separate announcement, the Social Security Administration stated that the taxable wage base will increase to $137,700 for 2020, an increase of $4,800 from the 2019 taxable wage base of $132,900. Thus, the maximum Social Security tax liability will increase for both employees and employers.
Additional IRS announcements: The IRS also recently announced 2020 Limits for FSAs and Transit Benefits.

    Get My Free HR Consultation Today

    If you're a current customer, click here