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IRS Benefit Plan Limits for 2020

On November 6, 2019, the Internal Revenue Service released Notice 2019-59, announcing cost-of-living adjustments that affect contribution limits for retirement plans and retirement accounts in 2020. The list below, although not exhaustive, highlights key changes that retirement plan sponsors should be aware of, as well as some limitations that remain unchanged from 2019:  

  • The elective deferral limit is increasing from $19,000 to $19,500.
  • The catch-up contribution limit for employees age 50 and older is increasing from $6,000 to $6,500.
  • The aggregate contribution limit for defined contribution plans is increasing from $56,000 to $57,000.
  • The annual compensation limit used to calculate contributions is increasing from $280,000 to $285,000.
  • The limitation on the annual benefit under a defined benefit plan is increasing from $225,000 to $230,000. (For a participant who separated from service before January 1, 2020, the limitation for defined benefit plans under Section 415(b)(1)(B) can be computed by multiplying the participant’s compensation limitation, as adjusted through 2019, by 1.0176.)
  • The dollar limit used in the definition of “key employee” in a top-heavy retirement plan is increasing from $180,000 to $185,000.
  • The dollar limit used in the definition of “highly compensated employee” is increasing from $125,000 to $130,000.

 

The table below displays the 2019 and 2020 limits for a host of tax breaks:

 

401(k) Plan Limits for Plan Year

2019 Limit

2020 Limit

401(k) Elective Deferral Limit1

$19,000

$19,500

Catch-Up Contribution2

$6,000

$6,500

Defined Contribution Dollar Limit

$56,000

$57,000

Compensation Limit3

$280,000

$285,000

Highly Compensated Employee Income Limit

$125,000

$130,000

Key Employee Officer Limit

$180,000

$185,000

  

Non-401(k) Limits

 

 

403(b) Elective Deferral Limit1

$19,000

$19,500

Defined Benefit Dollar Limit

$225,000

$230,000

457 Employee Deferral Limit

$19,000

$19,500

  

SEP and SIMPLE IRA Limits

2019 Limit

2020 Limit

SEP Minimum Compensation

$600

$600

SEP Maximum Compensation

$280,000

$285,000

SIMPLE Contribution Limit

$13,000

$13,500

SIMPLE Catch-Up Contribution2

$3,000

$3,000

 

 IRA and Roth Limits

 

 

IRA and Roth Contribution Limit

$6,000

$6,000

Catch-Up Contribution2

$1,000

$1,000


1Employee deferrals to all 401(k) and 403(b) plans must be aggregated for purposes of this limit.

2Contributors must be age 50 or older during the calendar year.

3All compensation from a single employer (including all members of a controlled group) must be aggregated for purposes of this limit.

 

 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax preparer, professional tax advisor, and/or a lawyer.

Disclosure: The Financial Consultants of Manning Wealth Management, Inc. are registered representatives and investment adviser representatives with/and offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. They are also an Investment Adviser Representatives of Manning Wealth Management. Financial planning services offered by Manning Wealth Management are separate and unrelated to Commonwealth. Fixed insurance products and services offered through CES Insurance Agency or Manning Wealth Management.

 

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Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, and Sam Millette, senior investment research analyst, at Commonwealth Financial Network®.

 

© 2019 Commonwealth Financial Network®