The IRS recently released Notice 2019-59 which announced contribution and benefit limits for employees who participate in many retirement plans for 2020.
Here is a summary of the changes to contribution, definition, and benefit limits for 2020:
Defined Benefit Plans
Effective January 1, 2020, the limitation on the annual benefit for a 415 defined benefit plan has increased from $225,000 to $230,000.
| Defined Benefit Pan | 2020 | 2019 | 2018 |
| 415 Defined Benefit Plan Compensation | $230,000 | $225,000 | $220,000 |
Defined Contribution Plans
The elective deferral limits for employees who participate in 401(k), 403(b), the federal government’s Thrift Savings Plan, and most 457 plans increased from $19,000 to $19,500. The catch-up limits for employees over 50 in these plans increased from $6,000 to $6,500 for 2020.
Additionally, the limitation for a 415 defined contribution plan for 2020 has increased from $56,000 to $57,000. The maximum annual compensation for defined contribution plans is always five times the annual contributions limit. With the changes to the annual contribution limit for 2020, the annual compensation limit will increase by $5,000 from $280,000 in 2019 to $285,000.
The employee deferral limit for Savings Incentive Match Plans for Employees (SIMPLE) plans increased from $13,000 to $13,500, however, the catch-up amount for employees remains unchanged at $3,000.
SEP minimum compensation amounts remain unchanged at $600, but SEP maximum annual compensation limit increased to $285,000 from $280,000 last year.
Highly compensated employee limitations increased to $130,000 from $125,000.
Key Employee officer threshold increased as well by $5,000 to $185,000 in 2020.
| Defined Contribution Plan | 2020 | 2019 | 2018 |
| 415 Defined Contribution Plan | $57,000 | $56,000 | $55,000 |
| Defined Contribution Elective Deferrals | $19,500 | $19,000 | $18,500 |
| Defined Contribution Catch-up Deferral | $6,500 | $6,000 | $6,000 |
| SIMPLE Employee Deferrals | $13,500 | $13,000 | $12,500 |
| SIMPLE Employee Catch-up Deferrals | $3,000 | $3,000 | $3,000 |
| SEP Minimum Compensation Limit | $600 | $600 | $600 |
| Annual Compensation Limit | $285,000 | $280,000 | $275,000 |
| Key Employee Officer Threshold | $185,000 | $180,000 | $175,000 |
| Highly Compensated Employee Definition Limit | $130,000 | $125,000 | $120,000 |
Stock Ownership
Maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,130,000 to $1,150,000. The dollar amount used to determine the lengthening period of the 5-year distribution period has also increased to $230,000.
The limitation concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000.
IRA
Both traditional and ROTH IRA annual contributions and catch-up contributions for people over 50 are unchanged for 2020 at $6,000 and $1,000, respectively.
The income limit for full deductions on contributions to Traditional IRAs (while participating in a workplace retirement plan also) increased to $65,000 in 2020 for singles. It increased to $104,000 for married filing jointly. When income goes above $75,000 for singles and $124,000 for married filing jointly, there is no deduction.
The income limit for deductions on contributions to IRAs for married filing jointly with a spouse that participates in an employee sponsored retirement plan increased to $196,000 for a full deduction with the deduction fully phasing out at $206,000.
Individuals making less than $124,000 are eligible to make Roth IRA deferrals, with the limit phasing out to zero at income of $139,000. These income limits for individuals who are married filing jointly increase to $196,000 and $206,000 respectively.
| Traditional and Roth IRA | 2020 | 2019 | 2018 |
| Contribution | $6,000 | $6,000 | $6,000 |
| Catch-Up | $1,000 | $1,000 | $1,000 |
| Deductible IRA income limit, single and also active participant in workplace retirement plan | $65,000- $75,000 | $64,000- $74,000 | $63,000- $73,000 |
| Deductible IRA income limit, married filing jointly and also active participant in workplace retirement plan | $104,000- $124,000 | $103,000- $123,000 | $101,000- $121,000 |
| Deductible IRA income limit, married filing jointly with a spouse that is an active participant in workplace retirement plan | $196,000- $206,000 | $193,000- $203,000 | $189,000- $199,000 |
| Roth IRA income limit, single | $124,000- $139,000 | $122,000- $137,000 | $120,000- $135,000 |
| Roth IRA income limit, married filing jointly | $196,000- $206,000 | $193,000- $203,000 | $189,000- $199,000 |
Government Plans
The deferral limitation for deferred compensation plans of state and local governments and tax-exempt organizations is increased from $19,000 to $19,500.
Participants in government plans that allow compensation limit COLAs have increased from $415,000 to $425,000 in 2020.
FSA and HSA
Flexible Spending Account (FSA) contributions increased to $2,750 in the year 2020 from $2,700 in 2019.
Health Spending Account (HSA) contributions for singles increased to $3,550 in 2020 and for families it increased to $7,100. Catch-up contributions for people over 55 remains unchanged at $1,000.
| FSA and HSA | 2020 | 2019 | 2018 |
| FSA Contribution Limit | $2,750 | $2,700 | $2,650 |
| HSA Contribution Limit, single | $3,550 | $3,500 | $3,450 |
| HSA Contribution Limit, family | $7,100 | $7,000 | $6,900 |
| HSA Catch-Up Contribution | $1,000 | $1,000 | $1,000 |
For More Information on 2020 retirement plan contributions
In order to make projections for optimum retirement plan contributions, you must take into consideration the adjusted contribution limits. If you have any questions or would like more information on how to best implement this into your plan, please contact CBIZ Retirement Plan Services.
CBIZ Retirement Plan Services is a trade name under which certain subsidiaries of CBIZ, Inc. (NYSE Listed: CBZ) market investment advisory, investment management, third party administration, actuarial and other retirement plan services. Investments, investment advisory and investment management services offered through CBIZ Financial Solutions, Inc., Member FINRA, SIPC and SEC Registered Investment Adviser, dba CBIZ Retirement Plan Advisory Services. Investment advisory and investment management services may also be offered through CBIZ Investment Advisory Services, LLC, SEC Registered Investment Adviser. Third party administration, actuarial and other consulting services offered through CBIZ Benefits & Insurance Services, Inc.