By Sarah Touzalin and Richard G. Schwartz
Seyfarth Synopsis: Many of the limitations that apply to tax-qualified plans, including 401(k) plans, are subject to cost-of-living increases. The IRS just announced the 2020 limits. 401(k) plan contribution limits are increasing, so check your elections starting in 2020. Employers maintaining tax-qualified retirement plans will need to make the necessary adjustments to the plans’ administrative/operational procedures and participant notices (e.g., safe harbor notice).
This morning the IRS announced the various limits that apply to tax-qualified retirement plans in 2020. Pursuant to IRS Notice 2019-59, you may be eligible to contribute up to $19,500 to your 401(k) plan in 2020, an increase of $500 over the 2019 limit. If you are or will be age 50 by the end of 2020, you also may be eligible to contribute up to an additional $6,500 as a “catch-up” contribution, also a $500 increase over the 2019 limit. Thus, if you are or will be age 50 by the end of 2020, you may be eligible to contribute up to $26,000 to your 401(k) plan in 2020. These same limitations apply if you work for a governmental or tax-exempt employer and participate in a 403(b) plan.
Other annual limits that increased include:
- the maximum that may be contributed to a defined contribution plan (e.g., 401(k) or 403(b) plan) in 2020, inclusive of both employee and employer contributions, will increase $1,000 to $57,000;
- the maximum annual compensation that may be taken into account will increase from $280,000 to $285,000; and
- the “highly compensated employee” income threshold will increase from $125,000 to $130,000.
The Notice includes numerous other retirement-related limitations for 2020, including a $6,000 limit on qualified IRA contributions (unchanged), and adjustments to the income phase-out for making qualified IRA contributions.
Individuals should check their plan contribution elections and consult with their personal tax advisor before the end of 2019 to make sure that they take full advantage of the increased contribution limits in 2020. Employers who sponsor a tax-qualified retirement plan should begin making the necessary adjustments to plan administrative procedures and participant notices to ensure proper administration of the plan in 2020.
Employers who sponsor defined benefit pension plans (e.g., cash balance plans) also should be sure to review the new limits in IRS Notice 2019-59 and make any necessary adjustments to plan administrative/operational procedures.