2020 Brings New Limits to Retirement Accounts

Investing Lifestyle Retirement
In 2020, the IRS brings some good news to the retirement savers of the world:  You can save more for retirement than in years past.  The limits for the following accounts increased: 401(k), 403(b), SIMPLE IRA, and Health Savings Accounts (HSA).  Savers over 50 will also see an increase to their catch-up contribution to $6,500.

Traditional and Roth IRA contributions remain unchanged at $6,000 or $7,000 if you are 50 or older.

You may contribute $19,500 to an employer sponsored retirement account, i.e. 401(k), 403(b), or SAR-SEP ($26,500 if you are age 50 or older).  Remember, to be eligible for the catch-up allowance, you need to turn 50 this calendar year.  If you are 49 now, but turn 50 in November, you are eligible for the full catch-up provision for the entire year.

 

A break down of changes are as follows:

The defined contribution plan limits (401(k), 403(b)) increases from $56,000 to the lesser of $57,000 or 100% of compensation (this includes employee and employer contributions).

 

We’re a big fan of Health Savings Accounts here at WealthPoint as they are often triple-tax advantaged.  See Josh Bentz’s post on why we think you should invest your HSA for retirement and pay for healthcare expenses out of current cash flow: https://wealthpointadv.com/why-you-should-care-about-health-savings-accounts-hsas/ 

 

Lastly, the income phase-out range for making Roth IRA contributions has increased.  Taxpayers with modified adjusted gross income (MAGI) under the lower end of the ranges shown below can make a full Roth IRA contribution.  If you are in the range, you will only be able to contribute a portion of the $6,000 max.  These limits do not apply to making Roth 401(k) contributions, if your employer allows it.

If you are over the AGI limits and still want to get tax-free Roth investments into your portfolio, check out Brie’s blog on Backdoor Roth Contributions: https://wealthpointadv.com/a-tax-free-roth-option-for-high-earners/

 

If you plan to save the max to your employer sponsored plan this year, be sure to review and potentially change your payroll deferral percentages.  Also, if you turn the big 5-0 this year, don’t forget about the catch-up provisions.

Happy New Year and Happy Savings!

About the Author: Brie Black

Brie grew up in San Antonio, Texas and attended Texas A&M University where she obtained a Bachelor’s degree in Business with minors in Financial Planning and Communication. While in college she worked under a seasoned financial advisor who helped her recognize her passion for helping others understand and grow their financial life.