401(k) Contribution Limits Increase for 2020
Tuesday, November 19, 2019
The Internal Revenue Service (IRS) released guidance on cost-of-living adjustments affecting contributions to 401(k) plans and other retirement-related items for 2020 because the increase in the cost-of-living index met the statutory thresholds, triggering their adjustment. However, one key limit remains unchanged.
The elective deferral (contribution) limit for employees who participate in 401(k) and 403(b) plans increased from $19,000 to $19,500. Employees aged 50 and over have a “catch-up” contribution limit increased from $6,000 to $6,500.
The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and older is not subject to an annual cost-of-living adjustment and remains $1,000.
The IRS also updated its cost of living adjustment (COLA) charts for retirement plan contribution limits.
Employers may want to consider communicating these maximum contribution increases to employees. Studies have shown that employees often have misperceptions about how much they can contribute.
More and more workers are postponing retirement with financial uncertainty topping the lists of reasons why. Now is a good time for your employees to check if they are taking full advantage of all their retirement savings opportunities and plan for 2020.