How much can you save for retirement in 2020? IRS notice 2019-59 details the technical guidance for 2020 retirement plan contribution limits. According to Vanguard’s How America Saves, in 2018, 13% of employees with retirement plans at work saved the maximum amount. The statistics are even higher for people earning over $150,000 a year. About 60% of higher-income earners contributed the maximum allowed.

For 2020 most contribution limits were increased except for Individual Retirement Accounts which remain at $6,000, the same as 2019.

The annual contribution limit for employees who participate in 401(k), 403(b), and most 457 plans are $19,500 for 2020. This is up from $19,000 in 2019. The catch-up contribution limit for employees age 50 and over is also increased by $500, from $6,000 up to $6,500. For the self-employed and small business owners, the amount they can save in a SEP IRA or solo 401(k) increases from $56k to $57k for 2020. If your 401(k) is the Roth type (funded with after-tax dollars) the contribution limit is also $57,000. For those people with SIMPLE plans, the limit goes up from $13,000 in 2019 to $13,500 in 2020. The SIMPLE catch-up limit is still $3,000. The limitation on the annual benefit of a defined benefit plan goes from $225,000 to $230,000 in 2020.

IRA contributions (whether pretax or Roth or a combination) remain at $6,000 for 2020 with the catch-up for those over 50 also remaining the same at $1,000.

Unlike the contribution amounts, the phase-outs for IRA income limits, have increased. In 2020 the deduction for taxpayers making a traditional IRA contribution phases out for singles and heads of household who are covered by a workplace retirement plan and have a modified adjusted gross income between $65,000 and $75,000. This limit is up $1,000 from 2019. For married couples filing jointly in which the spouse who is making the contribution is covered by a workplace retirement plan, the income phase-out range is also up $1,000 to $104,000 to $124,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out in 2020 if the couple’s income is between $196,000 and $206,000. This limit is up $3,000 from 2019.

For married Roth IRA savers the AGI phase-out is also $196,000 to $206,000 in 2020 which is up $3,000 from last year. For singles and head of households, the income phase-out range is $124,000 to $139,000 which is also up a little from 2019.

Overall, inflation adjustment has generally increased both contribution limits and phase-out limits for 2020.

If you have any questions about year-end tax planning or want to discuss other common tax saving or tax deferring options, please let me know. Thanks.