Tax Insights

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New contribution limit and phase-out ranges for 401(k) plans

old 401(k), locate funds, employee benefit plansFor 2020, the 401(k)-contribution limit is being increased to $19,500 from $19,000 and the catch-up limit is being increased to $6,500 from $6,000. In addition, the limitation regarding SIMPLE retirement accounts is increasing to $13,500 for 2020.

In order to determine eligibility to made deductible contributions to traditional IRAs or to contribute to Roth IRAs and to claim the Saver’s Credit, the income ranges have all increased for 2020.

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Taxpayers can now deduct contributions to a traditional IRA account under certain requirements. If at any point during the year the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be lessened, or potentially phased out, depending on the taxpayer’s filing status and income. If the taxpayer is not covered by an employer retirement plan, then the phase-out deduction does not apply. The ranges for the phase-out deduction for 2020 are:

  • Single taxpayers covered by a workplace retirement plan phase out at $65,000 to $75,000, which was previously at $64,000 to $74,000.
  • For married filing joint couples where the spouse making the contributions is the one who is covered with a workplace retirement plan, the phase-out range is $104,000 to $124,000, which was previously at $103,000 to $123,000.
  • For someone who contributes to an IRA account and is not covered, but is married to someone who is covered, the phase-out range is $196,000 to $206,000, which was previously at $193,000 to $203,000
  • For a married filing separate couple who is covered, the phase-out range remains at $0 to $10,000.

The income phase-out range for contributions to a Roth IRA vary. For single and head of household taxpayers, the phase-out range is $124,000 to $139,000. For married filing joint couples, the range is $196,000 to $206,000. Married filing separately taxpayers who contribute to a Roth IRA have no change in the phase-out range and remains at $0 to $10,000.

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The income limit for the Saver’s Credit is $65,000 for married filing joint couples, $48,750 for head of household, and $32,500 for singles and married filing separately taxpayers.

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000.

 

Laine Sperbeck