The IRS has announced the cost-of-living adjustments (COLAs) that will apply to tax-qualified retirement savings plans for the 2020 tax year. In some years, the increase in the cost-of-living index does not meet the statutory thresholds that trigger increased limits. This is true for the 2020 IRA contribution limit. The annual IRA contribution limit will remain at $6,000 (for Traditional and Roth IRA contributions in aggregate) for 2020. The age 50 catch-up contribution also remains the same, at $1,000, for 2020. The income limits for determining tax deductions for Traditional IRAs and eligibility to contribute to a Roth IRA, however, are increasing. So too are the contribution limits for employer-sponsored SEP and SIMPLE IRA plans.
This chart provides the IRA limits for 2020 by IRA type (as well as illustrating how the limits have changed over the past few years).
|Active participant, married, joint filer tax deduction phase-out range||$104,000–$124,000||$103,000–$123,000||$101,000–$121,000|
|Active participant, single filer tax deduction phase-out range||$65,000–$75,000||$64,000–$74,000||$63,000–$73,000|
|Joint filer, married to active participant tax deduction phase-out range||$196,000–$206,000||$193,000–$203,000||$189,000–$199,000|
|Married, joint file eligibility phase-out range||$196,000–$206,000||$193,000–$203,000||$189,000–$199,000|
|Single filer eligibility phase-out range||$124,000–$139,000||$122,000–$137,000||$120,000–$135,000|
|SEP IRA PLAN||2020||2019||2018|
|Maximum employer contribution||$57,000||$56,000||$55,000|
|SIMPLE IRA PLAN||2020||2019||2018|
|Maximum employee contribution||$13,500||$13,000||$12,500|
Making Traditional, Roth, SEP & SIMPLE IRA Contributions for 2020
Traditional IRA – The maximum amount you may contribute to an IRA for 2020 is the smaller of 100% of your compensation or $6,000. If you are age 50 or older, you have the option of making an additional “catch-up” contribution of up to $1,000 each year.
Traditional IRA contributions are generally fully deductible unless you or your spouse is covered by an employer’s retirement plan, such as a 401(k) plan. If you or your spouse is participating in an employer plan, the deductibility of your traditional IRA contributions will depend on whether your modified adjusted gross income (MAGI) exceeds the limits listed in the above chart. For example, if you are married, filing a joint tax return, and are participating in a 401(k) plan at work in 2020, your annual IRA contribution will be fully deductible if your MAGI is under $104,000, and partially deductible if your MAGI is between $104,000 and $124,000. If your MAGI is $124,000 or higher, your traditional IRA contributions will not be deductible.
Roth IRA – The maximum amount you may contribute to a Roth IRA is the same as for Traditional IRAs: the smaller of 100% of compensation or $6,000. You have one limit for both Traditional and Roth IRA contributions each year. Individuals who are age 50 or over can make an additional $1,000 catch-up contribution.
If you have MAGI above a certain level, however, you are not eligible to make a Roth IRA contribution for the year. For example, if you are married and filing a joint tax return for 2020, you may contribute the full amount to a Roth IRA if your MAGI is less $196,000. If your MAGI is between $196,000 and $206,000, you may make a partial contribution. If your MAGI is $206,000 or higher, you cannot contribute to a Roth IRA for 2020.
SEP Plan – Only the employer sponsoring the SEP plan may make SEP plan contributions. The maximum limit on contributions is the lesser of 25% of an employee’s compensation or $57,000 for 2020. Only compensation up to $285,000 can be considered for contribution calculations. SEP plan contributions are made to an individual’s traditional IRA.
SIMPLE IRA Plan – Both employees and employers may make contributions to a SIMPLE IRA under an employer’s SIMPLE IRA plan. Employees may defer up to $13,000 for 2020, plus an additional $3,000 if the employee is age 50 or older. Employer contributions may either be matching contributions or nonelective contributions. Matching contributions may only be calculated on compensation up to $285,000 for 2020, but nonelective contributions are not subject to this limit.
For More Information
If you have questions about making IRA contributions, you can contact us at Service@StrataTrust.com.