2020 IRS Retirement Plans, Benefits, and HSA Limits
Traditionally, at the end of October, the Internal Revenue Service announced cost of living adjustments (COLA) affecting pension, retirement, and benefits contribution limits for 2020. The COLA will rise by 1.6% in 2020. This will slightly affect a few key limits.
Highlights of limits that remain unchanged
Traditional and Roth IRA contribution limits remain unchanged, $6,000 with the catch-up contribution also remaining unchanged at $1,000.
The compensation amount regarding SEPs remains unchanged at $600.
Highlights of limits that changed
401(k), 403(b), and 457(b) contribution limits will go up to $19,500 with the catch-up contribution also increasing to $6,500.
Annual benefit limit under a defined benefit plan increases from $225,000 to $230,000.
Simple IRA contribution limit increases to $13,500 with the catch-up contribution remaining unchanged at $3,000.
Highly compensated employee compensation increases from $125,000 to $130,000
SEP IRA maximum employer contributions as well as annual additions limit for defined contribution and profit sharing plans increases by $1,000 to $57,000.
Top-heavy plan key employee compensation limitation increases from $180,000 to $185,000.
The annual compensation limit used as a basis for Profit Sharing, 401(k), and SEP IRA contribution plans increases from $280,000 to $285,000.
The SIMPLE IRA maximum employer contribution dollar limit increases from $5,600 to $5,700.
The maximum account balance in an empoyee stock ownership plan (ESPP) subject to a 5-year distribution period increases from $1,130,000 to $1,150,000. The dollar amount used to determine the lengthening of the 5-year distribution period is also increasing, from $225,000 to $230,000.
Compensation limit of a control employee for fringe benefit valuation increases from $110,000 to $115,000.
Modified Adjusted Gross Income (MAGI)
here were a few important changes in MAGI limits that may affect your employees’ ability to contribute to other retirement plans and claim the saver’s credit.
The government allows taxpayers to deduct contributions to a traditional IRA. However, if an employee or their spouse already participates in a retirement plan at work, the deduction may be phased-out or even eliminated depending on their income and filing status.
2020 MAGI ranges to be able to take a full deduction for a contribution to a Traditional IRA
For singles and heads of households covered by a retirement plan at work, the new phase-out range is increased from $64,000 - $74,000 to $65,000 - $75,000.
For married couples filing jointly, where the spouse making IRA contributions is covered by a retirement plan at work, the new phase-out range is increased from $103,000 - $123,000 to $104,000 - $124,000.
For an IRA contributor who is not covered by a retirement plan at work, but is married to an active participant and filing jointly, the new phase-out range is increased from $193,000 – $203,000 to $196,000 - $206,000.
Unlike a Traditional IRA, contributions to a Roth IRA are not tax-deductible. However, there are still certain limits imposed by the IRS on who and how much can be contributed to a Roth IRA.
For singles and heads of household, the new phase-out range increases from $122,000 - $137,000 to $124,000 - $139,000.
For married couples filing jointly, the new phase-out range increases from $193,000 - $203,000 to $196,000 - $203,000.
The Saver's Credit
The retirement savings contributions credit has had some changes in its income limits too. For those who are:
Single or Married Filing Separately the income limit increases from $32,000 to $32,500
Heads of households the income limit increases from $48,000 to $48,750
Married Filing Jointly the income limit increases from $64,000 to $65,000
It's important to remind your participants that even though Roth IRA contributions are not tax-deductible, contributors to the Roth IRA can still claim the Saver’s Credit (up to 50% on the first $2,000, or $4,000 for a married couple filing jointly, $2,000 per each spouse) depending if their income is below certain limits and their filing status.