Well it’s that time of year—I’m not talking about holiday shopping, gorging on Christmas cookies and caramel popcorn at work or doing damage control after embarrassing yourself at the office holiday party. I’m talking about making year-end contributions to your retirement plans.
Remember that any 2019 contributions to employer-sponsored plans like 401(k)s, 403(b)s and 457 plans must be made by Dec 31, 2019. You can make 2019 contributions to Traditional and Roth IRAs by April 15, 2020.
Here are some important highlights:
1. Annual contribution limits for most employer-sponsored plans have increased by $500
From $19,000 in 2019 to $19,500 for 2020 annual contributions limits for many employer sponsored retirement plans have creased by $500. Note that individuals age 50 and older may make an additional $6500 “catch-up” contribution.
2. Contributions to Traditional and Roth IRAs
Besides increasing the limits for employer sponsored plans, contributions to Traditional & Roth IRA are $6000 for 2020. Individuals age 50 and over can make an additional $1,000 catch-up contribution!
3. To receive a deduction for your IRA contribution, your income cannot exceed a certain amount each year
There are certain income thresholds that cannot be exceeded for you to receive a deduction for your IRA contribution. If you exceed the 2019 IRA contribution limit, you may withdraw excess contributions from your account by the due date of your tax return (including extensions). Otherwise, you must pay a 6% tax each year on the excess amounts left in your account. Learn more about the IRS thresholds for 2019 are available here.
4. Keep an eye on the annual benefit compensation limits
The annual benefit for a participant with a defined benefit plan in 2019 cannot exceed the lesser of:
a) 100% of the participant’s average compensation for his or her highest 3 consecutive calendar years
b) $230,000 for 2020, up from $225,000 in 2019 (IRS)
5. For 2020, there are new limits for your a Health Savings Account (HSA )
Next year, you can set aside more pre-tax money for medical expenses. The new lints are going up $50 for individual coverage and $100 for family coverage. The catch-up contribution limit for those over 55 will remain at $1000.
6. Remember that HSAs may be available to individuals with high deductible health plans.
Don’t forget that Health Savings Accounts (HSAs) can be available to individuals on accounts that have high deductibles. It has some advantages because you make pre-tax contributions, enjoy tax-deferred growth and tax-free withdrawals if used for qualified medical expenses.
Saving is key to a successful retirement.
One of the best ways to save is to take advantage of employer-sponsored plans and health savings accounts or saving on your own in an IRA. Make sure you are maxing out your annual contributions and that you are working with an advisor who can advise you on how to invest your tax deferred assets for growth.
