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401(k) Limits Are Rising in 2020. Here's How to Maximize Your Savings

By Maurie Backman – Updated Nov 13, 2019 at 3:47AM

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Talk about good news for savers.

Saving for retirement is crucial at any age, and the more the IRS lets you sock away on an annual basis, the easier it becomes to meet your goals. So here's some good news: The 401(k) limits are increasing in 2020, which means come next year, you'll have an even greater opportunity to build retirement wealth.

What the new 401(k) limits look like

Next year, 401(k) limits are going up by $500. This means they'll increase from $19,000 to $19,500 for workers under 50.

Catch-up contributions for older workers are increasing by $500 as well. This is significant because catch-ups have held steady at $6,000 for years, but now they're rising to $6,500. In 2020, workers 50 and older have an opportunity to sock away $26,000 in a 401(k). And to be clear, you can take advantage of that catch-up even if you won't turn 50 until Dec. 31 next year.

Glass jar with rolled-up bills and coins labeled 401K


None of these figures include employer contributions, by the way. You may be able to put more than $19,500 (or $26,000) into your 401(k) in 2020 if you capitalize on a company match.

What about solo 401(k)s?

If you're self-employed and maintain a solo 401(k), you'll get to contribute more to your account in 2020 as well. The annual limits are increasing from $56,000 in 2019 to $57,000 in 2020. Keep in mind, however, that only higher earners will be able to take advantage of that increase because solo 401(k) contributions are limited to 20% of earned income.

Boosting your personal savings rate

Of course, just because 401(k) contribution limits are rising doesn't mean maxing out will be easy. This especially holds true if you're not a particularly high earner. But there are steps you can take to eke out more savings and benefit from these higher limits.

For one thing, get on a tighter budget. That could involve downsizing your home, unloading a vehicle you can live without, cooking most of your food at home rather than dining at restaurants, and vacationing modestly rather than springing for luxury resorts and high-end destinations.

Don't want to make such extreme lifestyle changes? Then consider getting yourself a side job on top of your main one, and using its proceeds to fund your 401(k).

Clearly, all of this will entail a fair amount of sacrifice. But the more you manage to sock away for retirement, the more financial security you'll buy yourself down the line. Remember, Social Security won't come close to paying your retirement expenses in full. Those benefits will only replace about 40% of the average earner's pre-retirement income, and most seniors need around 80% of their previous earnings to maintain a comfortable lifestyle. Furthermore, Social Security may be forced to reduce benefits as early as 2035, at which point those benefits will do an even worse job of replacing your income.

Therefore, if you have access to a 401(k), it pays to contribute as much as you can, and, ideally, max out year after year. This especially holds true if you're further along in your career and are behind on savings at present.

If you can't max out, do your best

Maxing out a 401(k) is a tough thing to do, even if your earnings are more substantial. If you can't manage to hit next year's limits, your next best bet is to save more than you did in 2019: Increase your monthly contributions by $20, or $50, or $100. You can accomplish this goal by making minor adjustments to your lifestyle. In the course of a year, it could go a long way toward getting you closer to that max.

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