IRS Releases 2020 Limits for Pension and Retirement Plans

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The Internal Revenue Service has released cost-of-living adjustments to pension plans and other retirement-related items for 2020 in IR-2019-179.

Many of the limits applicable to pension and other retirement plans have increased, however, 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.

Summary of Changes

  • The elective deferral limit for employees participating in 401(k), 403(b), and most 457 plans has increased from $19,000 in 2019 to $19,500 in 2020.
  • The “catch-up” contribution limit for employees aged 50 and over participating in 401(k), 403(b), and most 457 plans has increased from $6,000 in 2019 to $6,500 in 2020.
  • The annual compensation limit has increased from $280,000 in 2019 to $285,000 in 2020.
  • The limit on annual contributions to a SIMPLE plan has increased from $13,000 in 2019 to $13,500 in 2020.
  • The defined contribution plan limit has increased from the 2019 level of $56,000 to $57,000 in 2020.

In addition, the income ranges for determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs, and to claim the saver’s credit all increased for 2020.

  • The deduction for taxpayers making contributions to a traditional IRA is phased out for single individuals and heads of household who are active participants in a qualified plan and have adjusted gross incomes between $65,000 and $75,000, increased from between $64,000 and $74,000 in 2019. For married couples filing jointly, if the spouse who makes the IRA contribution is an active participant, the income phase-out range is between $104,000 and $124,000, increased from between $103,000 and $123,000 for 2019.
  • For an IRA contributor who is not an active participant and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $196,000 and $206,000, increased from between $193,000 and $203,000 in 2019. Finally, for a married individual filing a separate return who is an active participant, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59.

Planning for optimum retirement plan contributions each year must incorporate the adjusted thresholds.  Should you have questions or comments, please contact Bob Grossman or Don Johnston at 412-338-9300.