This year was a good year for those over age 50 as both the base contribution limit and the catch-up contributions for most retirement plans increased by at least $500 making a total additional potential savings of $1,000 per plan for the over 50 crowd.

For the lucky few who are over 50 and have both a 403(b) and 457 plan this could mean an additional $2,000 of total Roth savings.

Last year in 2019 was the first time since 2015 that the IRA contribution limit was increased. There was some wishful thinking that the increases would continue, but alas, in 2020 the base limit is remaining the same at $6,000 and the contribution catch-up remains at $1,000.

Health Saving Account (HSA) contribution limits saw an increase as well, with $50 to the base individual and $100 to the base family limits. However, in the face of such outrageously high insurance premiums these small balances are perhaps not as exciting as they should be.

As always, we recommend updating your contributions to meet these new maximums.

If you are stretched thin and are thinking, “I can’t afford to save more!” You might appreciate reading our articles “Fund Your Roth IRA Even When You Can’t Afford It” and “How to Convert Taxable Savings Into Your Roth IRA.”

A Roth IRA can actually make a great place to store your emergency fund. Even though it is a retirement account, Roth IRAs have the special provision that you can always withdraw the amount you contributed for any reason and at any age. If you have the free cash, fully funding your Roth IRA is normally the right decision.

 

Tax Year 2020

Account Type	Requirements		Contribution Limit	Change from 2019
Traditional or Roth IRA Contribution (subject to phaseouts, limited by wages)	Age 49 and under		$6,000	No change to base contribution limit catch-up remains at $1,000
	Age 50 and over		$7,000
Employee Elective Deferral 401(k) or 403(b) plans	Age 49 and under		$19,500	+$500 to base contribution limit catch-up increases +$500 to $6,500
	Age 50 and over		$26,000
Employee Deferred Compensation 457(b) plans	Age 49 and under		$19,500	+$500 to base contribution limit catch-up increases +$500 to $6,500
	Age 50 and over		$26,000
Employee Elective Deferral SIMPLE 401(k) or IRA Plan (with further limitations)	Age 49 and under		$13,500	+$500 to base contribution limit catch-up remains at $3,000
	Age 50 and over		$16,500
SEP IRA Employer Contribution 401(k), 403(b), or 457 plans Employer Contribution	The smaller of:		$57,000 or 25% of compensation	+$1,000 to base contribution limit
Health Savings Account (HSA) Contribution	Single Plan	Age 54 and under	$3,550	+$50 to base single contribution limit +$100 to base family contribution limit catch-up remains at $1,000
		Age 55 and over	$4,550
	Family Plan	Age 54 and under	$7,100
		Age 55 and over	$8,100

 

You can find the current contribution limits here: Account Contribution Limits
and the IRS page on the same topic here: Retirement Topics – Contributions

Featured Image by Melissa Walker Horn on Unsplash