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You'll be able to put more money into your 401(k) in 2020, but not your IRA

  • By Alessandra Malito

MarketWatch - 11/09/2019

The IRS raised the amount you can put into a 401(k) or 403(b) to $19,500

Americans will be able to save just a little bit more in some of their retirement accounts in 2020.

The Internal Revenue Service announced it is increasing its 401(k), 403(b) and most Thrift Savings Plans deferred contribution limit to $19,500 next year, up from $19,000 in 2019. Catch up contributions are also jumping $500, to $6,500 in 2020. That means Americans 50 years and older can contribute a total of $26,000 in 2020.

The maximum contribution for individual retirement accounts will remain at $6,000, as will the catch-up contribution for those accounts (at $1,000). SIMPLE plans are going up to $13,500 next year, from $13,000 in 2019.

The IRS has also adjusted the income limits for eligible deductions of IRA contributions. The phase-out range determines if a taxpayer can claim a deduction on their federal income tax return for their IRA contributions -- someone who earns between the range would be limited in what they can claim, whereas someone earning past the range would not be able to claim a deduction. Taxpayers who are not covered by an employer-sponsored plan can deduct their contributions in full, according to the IRS.

The new limits, beginning Jan. 1, 2020, are as follows:

- The phaseout range for single account holders of traditional IRAs and heads of household who are active participants of a plan is $65,000 to $75,000;
- For married couples filing jointly, where the spouse who makes the IRA contribution is an active participant in a qualified account, the phase-out range is between $104,000 and $124,000;
- For an IRA contributor who is not an active participant but is married to someone who is, the range is $196,000 and $206,000;
- And for married individuals filing separately, the phase-out range for an active participant remains at $0 to $10,000.

Roth IRAs, which are funded with after-tax dollars, have separate income limits and no deductions, and are held to these phase-out ranges for making contributions:

- In 2020, singles and heads of households have an adjusted gross income range between $124,000 and $139,000;
- Married taxpayers filing jointly have a phase-out range between $196,000 and $206,000;
- And for married individuals filing separately, the phase-out remains at $0 to $10,000.

The total contribution limit to 401(k) and similar plans increased to $57,000, up from $56,000, and would include employee contributions as well as employer contributions.

Many Americans don't max out their 401(k) plans. Only 13% of participants did so in 2017, when the limit was $18,000, according to a 2018 Vanguard report about its investors, and they were typically participants who had higher incomes, were older and had a longer tenure at their employers. Comparatively, 9.1% of Fidelity investors with a 401(k) plan had maxed out their accounts in 2018, up from 9% in 2017 and 8.1% at the end of 2013.

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