Are you hoping to increase your retirement account contributions in 2020? That's a great financial goal, since many Americans are saving far too little.
Saving for retirement in a tax-advantaged account such as a 401(k) or an IRA is the best way for most people to prepare for their golden years. Investing costs less when the money you set aside for it lowers your taxable income and decreases your eventual bill from the IRS. There are annual limits to the tax-advantaged contributions you can make, but these limits went up in 2020.
This is the maximum you can contribute to tax-advantaged retirement accounts in 2020
The table below shows the maximum you can personally contribute to different kinds of retirement savings accounts in 2020. This is separate from any employer contributions, which are subject to a different limit.
|Account type||Maximum Contribution in 2020||Change From 2019|
|401(k) catch-up contributions for workers 50 & over||$6,500||$500|
|Traditional & Roth IRA (aggregate limit for both accounts)||$6,000||No change|
|IRA catch-up contributions for workers 50 & over||$1,000||No change|
While there are no income limits for making 401(k) or Simple IRA contributions, there are some income-based restrictions for traditional and Roth IRAs.
- If you have access to a retirement plan at work, your ability to make tax-deductible contributions to an IRA starts to phase out at $65,000 for singles, $104,000 for married couples filing jointly, and $0 for married couples filing separately. You can no longer make deductible contributions once your income exceeds $75,000 as a single, $124,000 for married filing jointly, or $10,000 if you're married filing separately.
- If your spouse has access to a workplace retirement plan, your ability to make tax-deductible IRA contributions begins to phase out at $196,000 if you're married filing jointly and $0 if you file separately. You can no longer make deductible contributions once your income exceeds $206,000 for married filing jointly or $10,000 for married filing separately.
- Your ability to contribute to a Roth IRA at all begins to phase out once you have an income of $124,000 if you file as single or head of household, $196,000 for married filing jointly, and $0 for married filing separately. You are not allowed to contribute once your income exceeds $139,000 for singles or head of household, $206,000 for married filing jointly, or $10,000 for married filing separately.
Your employer can also contribute to your retirement accounts
Employers are also allowed to make contributions to your retirement accounts for you. These are subject to a separate limit and employer contributions don't affect how much you can personally contribute.
The table below shows the maximum contributions employers can make in 2020.
|Type of Account||Maximum Employer Contribution||Change From 2019|
Often, employers match a percentage of the contributions you make to your own 401(k) or Simple IRA. For example, your company may match 50% of your 401(k) contributions up to a maximum of 4% of your salary.
If your employer offers this help, you should contribute enough to earn the maximum match, or you'll be leaving free money on the table.
Contribute as much as you can to your retirement accounts in 2020
Now you know the maximum you can contribute to tax-advantaged retirement accounts in 2020. You should aim to contribute as much as possible to them. If you have enough money to max them out, you'll be well on your way to a secure future.