On November 6, 2019, the Internal Revenue Service (IRS) released Revenue Procedure 2019-44 announcing the following limit increases 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 increases from $19,000 to $19,500.
- The catch-up contribution limit for employees aged 50 and over who participate in these plans increases from $6,000 to $6,500.
- The limitation regarding SIMPLE retirement accounts increases from $13,000 to $13,500.
- 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 Save's Credit will all increase.
- Taxpayers may deduct contributions to a traditional IRA upon meeting certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)
The phase-out ranges for 2020 are as follows:
- For single taxpayers covered by a workplace retirement plan, $65,000 to $75,000, up from $64,000 to $74,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, $104,000 to $124,000, up from $103,000 to $123,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, joint income between $196,000 to $206,000, up from $193,000 to $203,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
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.
Of note, the limit on annual contributions to an IRA remains at $6,000 and the additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000.
Contact the Congruity team of professionals for more information at: 844.247.4100