Do you have a retirement or pension plan established for your company? Are you part of your employer’s retirement plan? Do you contribute to an IRA? Do you pay into the social security system? Chances are unless you are retired, you answered yes to at least one of these questions and you will want to know about changes taking place in 2020.
On an annual basis the IRS will review changes in the Consumer Price Index and make adjustments to the amount that can be contributed to qualified plans, individual retirement accounts, the income limitations for contributing, as well as social security taxable wage base.
On November 6, 2019, the Internal Revenue Service announced cost-of-living adjustments, based on changes to the Consumer Price Index (CPI), affecting dollar limitations for pension plans and other retirement-related items for the 2020 tax year. Many of the pension plan limits are increasing for the 2020 plan year due to Consumer Price Index (CPI) increases.
We are providing you with an overview of the updates to the 2020 IRS limits and how they will change from 2019. You can find a complete overview of the changes by visiting the IRS Notice 2019-59.
2020 IRS Limits Affecting Qualified Plans & IRA's
We have some key takeaways that should be reviewed. You may benefit by increasing your contributions for 2020.
- The Traditional and Roth IRA deferral limits will remain the same at $6,000.
- There were no changes to the catch-up contributions for IRA’s, it remains at $1,000.
- The 401(k) elective deferral limit was raised to $19,500. Be sure, if your intention is to max out, that you have the correct deferral percentage elected.
- Keep in mind that catch-up contribution limits for employees 50 and over who participate in 401(k), 403(b), most 457 plans and the federal governments Thrift Savings Plan has also changed to $6500
- The SIMPLE maximum has been increased from $13,000 to $13,500.
- Catch-up contribution limits for employees 50 and over who participate in a SIMPLE 401(k) or SIMPLE IRA remains unchanged at $3,000.
- Those that maintain or participate in a Defined Contribution or Defined Benefit plan will want to be familiar with the new dollar, plan, annual compensation, highly compensated employee and key employee limits.
- The social security wage base has been increased from $132,900 to $137,700. People who earn more than $132,900 will be contributing more to social security than they have in the past. Those beneath that threshold will not see any change in the coming year.
Be sure to discuss these changes with your financial professional and CPA. You may need to make some adjustments to your deferral strategy based upon the new limits released for 2020. It is important to make sure, especially if your intentions are to maximize your contributions, that you are contributing what you need to on an ongoing basis in order to max out your allowable contributions.
We would be happy to answer any questions you may have regarding these changes and how they may impact you. In addition, we would be happy to discuss the benefits of implementing a retirement plan for your business or a retirement account for you personally. Feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know needs assistance in this area.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.