The Internal Revenue Service has released cost-of-living adjustments for tax year 2020, covering dollar limitations for pension plans and other retirement-related items. The changes are covered in IRS Notice 2019-59, now posted on IRS.gov.
Change Highlights
One of the newsworthy adjustments is an increase in the contribution limit for employees participating in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan. The limit in all these instances is increased from $19,000 to $19,500.
The limit for catch-up contributions in the specified plans for employees age 50 and over is also boosted, from $6,000 to $6,500. Similarly, the limitation for SIMPLE retirement accounts has been boosted to $13,500 from $13,000 for 2020.
Individual Retirement Arrangement Income Ranges Modified
Income ranges for determining a taxpayer’s eligibility to make deductible contributions to a traditional IRA, to a Roth IRA, or to claim the Saver’s Credit, have all been increased.
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.) Phase-out ranges for 2020 are:
- 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.
The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000.
For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000.
The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers has an income limit of $65,000 for married couples filing jointly, which is up from the old limit of $64,000. The limit for heads of household was increased to $48,750; up from $48,000. Singles and married taxpayers filing separately will see their income limit increase from $32,000 to $32,500.
Annual contributions to an IRA remain capped at $6,000. The additional catch-up contribution limit for individuals 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000.
For additional details on retirement-related cost-of-living adjustments, check out IRS Notice 2019-59 posted on IRS.gov.
Patricia Parrilla Tax Services