The IRS announced this and other changes in Notice 2019-59. The guidance provides cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.
Highlights of Changes for 2020
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500.
The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.
The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019. The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
Effective Jan. 1, 2020, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) is increased from $225,000 to $230,000. The limitation for defined contribution plans under § 415(c)(1)(A) is increased in 2020 from $56,000 to $57,000.
The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $280,000 to $285,000, and the dollar limitation under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $180,000 to $185,000.
The limitation used in the definition of “highly compensated employee” under § 414(q)(1)(B) is increased from $125,000 to $130,000.
The dollar limitation under § 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or § 408(p) for individuals aged 50 or over remains unchanged at $3,000.
The dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,130,000 to $1,150,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $225,000 to $230,000.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.
Things that didn’t change; the limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59.
