HR and payroll managers will need to adjust their systems effective January 1, 2020 and inform employees about the new 401 (k) contribution limit changes the IRS has implemented.
The good news is that employees over the age of 50 can now contribute an additional $500 over the previous catch-up contribution limit of $6,000, which hasn’t changed since 2015. However, because the IRS announced the 2020 contribution changes so late this year (November 6th), the open enrollment period likely already closed, leaving plan sponsors and HR managers to provide an
New 401(k) Contribution Levels for 2020
addendum to benefits materials that have already been printed for the 2020 benefits open enrollment period.
The changes also increase the contribution limit from $19,000 to $19,500 next year.
The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020*:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
- 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 if the couple’s income is between $196,000 and $206,000, up from $193,000 and $203,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
For more information and a complete list of changes, please see the IRS.gov website Notice 2019-59 (PDF).
*Posted directly from IRS.gov