|
On November 6, 2019, the Internal Revenue Service released Notice 2019-59, announcing cost-of-living adjustments that affect contribution limits for retirement plans and retirement accounts in 2020. The list below, although not exhaustive, highlights key changes that retirement plan sponsors should be aware of, as well as some limitations that remain unchanged from 2019:
- The elective deferral limit is increasing from $19,000 to $19,500.
- The catch-up contribution limit for employees age 50 and older is increasing from $6,000 to $6,500.
- The aggregate contribution limit for defined contribution plans is increasing from $56,000 to $57,000.
- The annual compensation limit used to calculate contributions is increasing from $280,000 to $285,000.
- The limitation on the annual benefit under a defined benefit plan is increasing from $225,000 to $230,000. (For a participant who separated from service before January 1, 2020, the limitation for defined benefit plans under Section 415(b)(1)(B) can be computed by multiplying the participant's compensation limitation, as adjusted through 2019, by 1.0176.)
- The dollar limit used in the definition of "key employee" in a top-heavy retirement plan is increasing from $180,000 to $185,000.
- The dollar limit used in the definition of "highly compensated employee" is increasing from $125,000 to $130,000.
The table below displays the 2019 and 2020 limits for a host of tax breaks:
|
401(k) Plan Limits for Plan Year
|
2019 Limit
|
2020 Limit
|
|
401(k) Elective Deferral Limit1
|
$19,000
|
$19,500
|
|
Catch-Up Contribution2
|
$6,000
|
$6,500
|
|
Defined Contribution Dollar Limit
|
$56,000
|
$57,000
|
|
Compensation Limit3
|
$280,000
|
$285,000
|
|
Highly Compensated Employee Income Limit
|
$125,000
|
$130,000
|
|
Key Employee Officer Limit
|
$180,000
|
$185,000
|
|
Non-401(k) Limits
|
|
|
|
403(b) Elective Deferral Limit1
|
$19,000
|
$19,500
|
|
Defined Benefit Dollar Limit
|
$225,000
|
$230,000
|
|
457 Employee Deferral Limit
|
$19,000
|
$19,500
|
|
SEP and SIMPLE IRA Limits
|
2019 Limit
|
2020 Limit
|
|
SEP Minimum Compensation
|
$600
|
$600
|
|
SEP Maximum Compensation
|
$280,000
|
$285,000
|
|
SIMPLE Contribution Limit
|
$13,000
|
$13,500
|
|
SIMPLE Catch-Up Contribution2
|
$3,000
|
$3,000
|
|
IRA and Roth Limits
|
|
|
|
IRA and Roth Contribution Limit
|
$6,000
|
$6,000
|
|
Catch-Up Contribution
2
|
$1,000
|
$1,000
|
1
Employee deferrals to all 401(k) and 403(b) plans must be aggregated for purposes of this limit.
2
Contributors must be age 50 or older during the calendar year.
3
All compensation from a single employer (including all members of a controlled group) must be aggregated for purposes of this limit.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax preparer, professional tax advisor, and/or a lawyer.
If you are interested in scheduling a consultation, click here.
Sincerely,
John J. Higgins, CFP®, AIF®, CFS®
Managing Partner
|
|
| Have your 401(k) plan fees and investments been reviewed or bench marked in the past 3 years? If not, click here for a complimentary consultation. |
| Or call us at: (800) 572-8859 (973) 326-9300  |
|
