The Internal Revenue Service (IRS) recently released a number of cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.
Highlights include the following:
- The elective deferral (contributions) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increased to $19,500 from $19,000 in 2019
- The catch-up contribution limit for employees aged 50 and over who participate in these plans is $6,500 for 2020
- The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged increased to $6,500 from $6,000 in 2019
- The catch-up contribution limit for individuals aged 50 and over continues to be $1,000
- The limitation for defined contribution plans increased to $57,000 up from $56,000 in 2019
- The annual compensation limit for qualified plans increased to $285,000 up from $280,000 in 2019
- The limitation used to define highly compensated employees remains increased to $130,000 from $125,000 in 2019
Additionally, the Social Security Administration has announced its cost of living adjustments for 2020. Maximum earnings subject to the Social Security component of the FICA tax will increase to $137,700 for 2020. The Social Security and Medicare tax rates remain the same for 2020. The maximum Social Security benefit for a worker retiring at full retirement will increase to $3,011 per month for 2020, up from $2,861 per month for 2019.
For more information, or if you have questions about any other tax matter, please contact your WG advisor.