IRS Increases 401 Contributions; The Internal Revenue Service (IRS) today announced that all employees throughout the United States in 401(k) plans will be eligible to contribute up to $19,500 next year in 2020. Further changes have been made in Notice 2019-59 (PDF) by the IRS along with this news. Not only this, those employees who aged 50 and over in 401(k) plans; will be able to an increased catch-up contribution limit up to $6,500 in the next year 2020. The purpose of this guidance is to provide cost‑of‑living adjustments that affect dollar limitations for pension plans. And additional retirement-related items for the next tax year of 2020. Therefore, prepare your taxes in USA for 2020 and get all information regarding contribution and benefit limits by the IRS.
So, the amount that you can contribute to your 401(k) or parallel workplace retirement plan; goes up to $19,500 in 2020 that is $19,000 in 2019. Similarly, if you age 50 or older, then your 401(k) catch-up contribution limit can go up to $6,500. For workplace plans in 2020 which is only $6,000 at present in 2019. The important thing to note here is that; the amount that can be contributed to an Individual Retirement Account will remain same for the next year. I.e. $6,000 with a $1,000 catch-up limit if you age 50 or 50+. Read the complete post to get additional information or get our best retirement planning & advisory services in USA to plan your retired life with prosperity.
IRS Increases 401 Contributions; 2020 Retirement Plan Contribution:
The summary of the increased contribution limit up to $19,500 and risen up catch-up limit; up to $6,500 in 2020 by the Internal Revenue Service with further details is highlighted below:
1. IRS 401(k)s Limit:
Those employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will be eligible for an increment in the annual contribution limit. Retirement plan contribution limits are increased from $19,000 to $19,500 in the next year. Along with the open enrollment season when most of the employers send a reminder to the employees about updating their 401(k) election for the next plan year, changes to your 401(k) election can be made on behalf of tax planning in USA at any time during the whole year. You can Request call back to change 401(k) form in USA with our professional expertise in this sector.
2. 401(k)s Catch-Up Limit:
Those employees who are in between the age limit of 50 and over and participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will be eligible for an increment in the catch-up contribution limit, which is increased from $6,000 to $6,500 in the next year of 2020. Last time, the catch-up limit increased to $6,000 in 2015 and it took this long period for further amendments. The good thing is that even if you do not turn 50 until 31st of December, 2020, the additional $6,500 catch-up contribution can be made for the whole year. for further assistance, contact us to get complete help regarding retirement contribution and benefits and 401(k) amendments.
3. SIMPLE Retirement Limits:
For 2020, the limitation regarding SIMPLE retirement accounts is also increased from $13,000 in 2019 to $13,500 in 2020. On the other hand, no change has been made in the SIMPLE catch-up limit and it is still $3,000 for 2020. Along with this topic, you can also select accounting services in USA for individual and business purpose.
4. SEP IRAs & Solo 401(k)s Limits:
The amount that can be saved by small business owners as well. As the self-employed individuals in a SEP IRA or a solo 401(k) has also been increased. The amount in 2019 is $56,000 that has risen to $57,000 in 2020. The increment is dependent on the amount that can be contributed as an employer or as a specific percentage of their paycheck salary. We provide guidance regarding business advisory services as well as financial planning services to our small business owners and self-employed individuals clients. An increment has also been made in the compensation limit which is used in the savings calculation that was $280,000 in 2019 and now increased to $285,000 in 2020.
5. After-tax 401(k) Contribution Limits:
If aftertax contributions are allowed to your 401(k) in USA by your employer, the advantage of the $57,000 limit for 2020 is accessible to you. It overall includes 19,500 (pretax or Roth in any combination) salary deferrals plus any employer contributions. Catch-up contributions are not included in it. To get more info regarding aftertax contributions, make initial inquiry with our team members.
6. Defined Benefit Plans Limits:
The limit on the annual benefit of a defined benefit plan is increased up to $230,000 in 2020 that is $225,000 in 2019. For high-earning self-employed individual in the United States, these are considered as the robust pension plans as they were more common before 401(k)s establishment. Get more knowledge about retirement pension planning in USA.
7. Individual Retirement Account Limits:
The limit for making annual contributions to an Individual Retirement Account (pretax or Roth or a combination) has not been changed for 2020 and it will remain similar to 2019 i.e. at $6,000. Furthermore, the catch-up contribution limit (not subjected to inflation adjustments) will also remain same as that of 2019 i.e. at $1,000. Must note that 15th April, 2021 is the final date for making 2020 IRA contributions in USA.
8. Deductible IRA Phase-Out Limits:
Earn a little more than usual by deducting your contributions to a traditional pretax IRA in 2020. It must be noted that contribution can be made even if the contributor earns too much for getting a deduction for contribution to an IRA as it is non-deductible. The income limits for the determination of eligibility in making deductible contributions to traditional Individual Retirement Arrangements (IRAs), for contributing to Roth IRAs and for claiming the Saver’s Credit has also been increased for the next year 2020. Tax planning is the major step to undergo the whole procedure smoothly.
The taxpayers in USA are required to meet certain conditions for deducting contributions to a traditional IRA. On the basis of filing status and income of the taxpayer, if the taxpayer or his or her spouse was covered by a retirement plan at work, then the deduction may be phased out, or reduced, till it is eliminated. The phase-outs of the deduction are not applied in the cases where neither the taxpayer nor his or her spouse gets covered by a retirement plan at work.
IRS Increases 401 Contributions; Phase out ranges
The phase-out ranges for 2020 are also discussed here. Range for single taxpayers covered by a workplace retirement plan is increased up from $65,000 to $75,000 in 2020 that is from $64,000 to $74,000 in 2019. For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan is increased up from $104,000 to $124,000 in 2020 that is from $103,000 to $123,000 in 2019. Phase-out range for an IRA contributor who is not covered by a workplace retirement plan but married to someone who is covered by a workplace retirement plan is increased up from $196,000 and $206,000 in 2020 that is from $193,000 and $203,000 in 2019. The phase-out range for a married individual filing a separate return who is covered by a workplace retirement plan is not subject to an annual cost-of-living adjustment which means that it is not increased in 2020 and it will remain as it is in 2019 i.e. from $0 to $10,000.
9. Roth IRA Phase-Out Limits:
Roth IRA savers also get help from the inflation adjustment. The deduction phase-out range for an IRA contributor who is not covered by a workplace retirement plan; but married to someone who is covered is increased up from $$65,000 and $75,000 as modified adjusted gross incomes (AGI) in 2020 that is from $64,000 to $74,000 in 2019. You can take the advantage when you file your taxes accurately in 2020. The deduction is phased out for an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered only if the income of the couple ranges from $196,000 to $206,000 in 2020 that was previously between $193,000 and $203,000 in 2019.
10. Saver’s Credit Limits:
The saver’s credit for low to moderate income workers has also increased. The income limit for married couples filing jointly for 2020 goes up to $65,000 from $64,000. By hiring best financial planning services in USA, low to moderate income employees can wisely save their assets. The income limit for heads of household for 2020 goes up to $48,000 from $32,000. The income limit for singles and married filing separately for 2020 goes up from $32,000.
11. QLAC Limits:
The dollar limit on the amount of your specific IRA or 401(k); that can be invested in a qualified longevity annuity contract. It also has been increased in 2020 up to a limit of $130,000 that was previously $135,000 in 2019.
What do you think about this intuitive by the IRS for increasing contribution and benefits limit in the retirement plans and 401(k) along with waiving penalties on late tax filing in USA. That was all about IRS Increases 401 Contributions; Let us know about your thoughts by commenting down below.