Revised Dollar Amounts for Retirement Plans and IRAs in 2020

Each year, the IRS can adjust various amounts used to figure contributions, benefits, deductions, and credits related to qualified retirement plans and IRAs. The IRS has now done so for 2020 amounts (Notice 2019-59). The adjustments are modest in view of low inflation. Here are some highlights:

Elective deferrals. The limit on an employee’s elective salary deferrals in 401(k), 403(b), 457 plans, and the federal government’s Thrift Savings Plan is $19,500 ($500 higher than in 2019). The catch-up contribution for those age 50 or older by the end of the year is $6,500 (also $500 more in 2019), for a total deferral amount of $26,000. The elective deferral limit to a SIMPLE IRA is $13,500 ($500 more than in 2019). But the catch-up contribution remains at $3,000.

Contributions and benefits to qualified retirement plans. The limit for contributions to defined contribution plans, including profit-sharing plans and SEPs, is $57,000 (up $1,000 from $2019). The limit on benefits from defined benefit (pension) plans is $230,000 (up $5,000 from 2019). The annual compensation that can be taking into account for figuring contributions and benefits is $285,000.

Income limits for Roth IRAs and traditional IRAs. The modified adjusted gross income (MAGI) limits have increased for contributing to a Roth IRA, or for deducting contributions to a traditional IRA by a taxpayer who is an active participant in a qualified retirement plan.

• For Roth IRAs: For joint filers, the 2020 contribution phaseout threshold begins at $196,000, and the phaseout is complete when MAGI is $206,000. For singles and heads of households, the phaseout threshold begins at $124,000, and the phaseout is complete when MAGI is $139,000. For married persons filing separately who live together at any time in the year, the phaseout range remains at zero to $10,000.
• For traditional IRA owners who actively participate in a qualified retirement plan: For joint filers, the 2020 deduction phaseout threshold begins at $104,000, and the phaseout is complete when MAGI is $124,000. For singles and heads of households, the phaseout threshold begins at $65,000, and the phaseout is complete when MAGI is $75,000. If one spouse is an active participant and the other is not and they file jointly, the 2020 phaseout threshold for the non-participant spouse begins at $196,000, and the phaseout is complete when MAGI is $206,000. For married persons filing separately who live together at any time in the year, the phaseout range remains at zero to $10,000.

Retirement savers credit. The adjusted gross income (AGI) limits for figuring the credit for elective deferrals, contributions to IRAs, and certain contributions to ABLE accounts have increased across the board. A partial credit can be claimed as long as AGI does not exceed $65,000 on a joint return, $48,750 for heads of households, and $32,500 for other filers.

Note: The contribution limit for IRAs and Roth IRAs remains unchanged at $6,000 ($7,000 for those who are at least 50 years old by the end of the year).