Every year the U.S. Treasury evaluates what’s happening with the cost-of-living and inflation rate in our economy. Based on that data, the IRS is required to make a variety of adjustments in the tax law. Fortunately, many of the changes can help savers squirrel away more money for retirement.
I’ll highlight six upcoming retirement account changes you can expect in 2020. Get a head start and begin making plans to cash in on these adjustments.
6 Retirement Account Changes to Expect in 2020
Use these increased limits to boost your retirement savings in the new year.
1. Higher contribution limits for workplace plans
Starting in 2020, if your employer offers a workplace retirement plan, such as 401(k) or a 403(b), the base amount you can contribute will increase from $19,000 to $19,500. The same adjustment applies to most 457 plans and the federal government’s Thrift Savings Plan or TSP. You can have both a traditional and an after-tax Roth retirement account at work in the same year if your total contributions don’t exceed that annual limit.
So, make a goal to max out your retirement plan by updating your contribution percentage or dollar amount per pay period. You can make changes to your plan at any time during the year. In most cases, you can set up a higher contribution rate to begin at a particular time, such as on January 1.
You can make changes to your plan at any time during the year. In most cases, you can set up a higher contribution rate to begin at a particular time, such as on January 1.
If your company offers retirement matching as a perk, you’re allowed to exceed the base annual limit. The overall contribution limit, including employee and employer contributions, will increase by $1,000 to 100% of your compensation or $57,000, whichever is less.
2. Higher catch-up limits for workplace plans
The IRS cuts older workers some slack by allowing them to save more to retirement accounts. These “catch-up” contributions apply when you’ve reached age 50.
In the new year, catch-up contributions increase from $6,000 to $6,500 for most types of workplace retirement plans. This change is significant because it’s the first catch-up increase that we’ve seen in several years.
In the new year, catch-up contributions increase from $6,000 to $6,500 for most types of workplace retirement plans.
If you’re over 50, starting in 2020, you’ll be allowed to contribute $19,500 plus $6,500 for a total base limit of $26,000 to your retirement account at work. If you turn 50 before the end of 2020, don’t miss the chance to save an additional $1,000 for retirement.
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