The Internal Revenue Service recently announced new contribution limits for many popular retirement accounts in 2020. In order to make the most of your savings, it’s helpful to know these retirement plan contribution limits.
2020 Retirement Plan Contribution Limits
401(k), 403(b), 457 Plans, TSP Plans
The annual retirement plan contribution limits for people who participate in 401(k)s, 403(b)s, most 457 plans and Thrift Savings Plans will be $19,500 in 2020. This is a $500 increase from 2019, so people who seek to max out their contributions should adjust accordingly.
401(k) Catch-Up Contributions
Catch-up contributions allow people ages 50 or older to make additional contributions to their 401(k)s and/or IRAs.
In 2020, the catch-up contribution limit will be $6,500. This is the first increase since 2015, when the limit first rose to $6,000.
SEP IRAs and Solo 401(k)s
Small business owners and people who are self-employed can contribute up to $57,000 to SEP IRAs or solo 401(k)s as an employer in 2020.
This is a $1,000 increase from 2019.
SIMPLE Contribution Limits
Savings Incentive Match Plans for Employees (SIMPLE IRAs) allow employees and employers to contribute to traditional IRAs which are set up for employees.
In 2020, participants will be able to contribute $13,500, which is a $500 increase from 2019. Participants who are 50 or older can make an additional catch-up contribution of $3,000, making their maximum $16,500.
Roth and Traditional IRA Contribution Limits
The retirement plan contribution limits for Roth and Traditional IRAs will be $6,000 in 2020, and the catch-up contribution for people who are 50 and older will be $1,000. These limits are both the same as they were in 2019.
Is it Necessary to Contribute the Maximum?
Although it varies on a case by case basis, it’s typically wise to contribute as much as possible to retirement accounts. Having more money than necessary in retirement is certainly a better situation than running out of money in retirement.
As always, what’s best for each individual varies. We recommend meeting with a Certified Financial Planner® professional to align your financial goals and your retirement savings plans.