IRS Lifts 401(k) Contribution Limits For 2020
The IRS has nudged up the basic employee contribution limit for 2020 to 401(k) accounts to $19,500. And it boosted the catch-up contribution for the first time in five years.
If you are 50 or older, you can kick in as much as an additional $6,500.
The combined limit would be $26,000.
The limits apply to regular 401(k) accounts and to Roth-style accounts, if your plan permits them.
401(k) Contribution Limits In Roth-Style Accounts
The IRS calls a Roth-style account a designated Roth account.
Roth accounts within your 401(k) take after-tax contributions. That means any money you put into a Roth 401(k) is not tax-deductible. That's unlike contributions to a regular 401(k) account, which are deductible, reducing your taxable income.
However, like withdrawals from a Roth IRA, withdrawals from a Roth 401(k) account are tax free.
The same contribution limits apply to 403(b) plan accounts and to most 457 plans, as well as to the federal government's Thrift Savings Plan for its workers.
Your Own Contributions Plus Your Company Match
The $19,500 contribution limit for workers is separate from the cap on employers' contributions, which take the form of a company match or a profit-sharing contribution.
In 2020, the combined cap on contributions by plan members and employers is $57,000, or $63,500 for workers who are 50 or older.
Solo 401(k) Plans
A solo 401(k) is a 401(k) for Americans who own a small business that has no full-time employees other than themselves and their spouse.
The solo 401(k) contribution limit is, basically, the same as it is for other types of 401(k) accounts. The combination of contributions by your business and your own salary contributions may not exceed $57,000 for 2020 or $63,500 if aged 50 or older. Those are up from $56,000 and $62,000 in 2019.
|Year||Your basic contribution||Catch-up contribution if you are age 50 or older|
Source: Internal Revenue Service
To learn more about the 2020 limits, please click here.