Today, the IRS announced the tax year 2020 dollar limitations for retirement plans. The limits are detailed in Notice 2019-59. While these limits are generally released in October, there was a slight delay. Thankfully, the issued limits align with many projections previously issued.
As a reminder, the Tax Cut and Jobs Act of 2017 made changes to how the “cost of living adjustments” (or COLAs) are made for certain retirement plan provisions, which triggered some additional COLA adjustment for this upcoming year.
For those administering retirement plans, a few highlights for 2020 include:
- Increase in the deferral limitation (under Section 402(g)(1)) from $19,000 to $19,500. This increased limit applies for 457 plans as well.
- Increase in the catch up amount for individuals aged 50 or over (under Section 414(v)) from $6,000 to $6,500.
- Increase in the amount of annual compensation that can be considered in determining qualified benefits (under Section 401(a)(17)) from $280,000 to $285,000.
- Increase in the “key employee” dollar limitation for top heavy plan purposes (under Section 416(i)) from $180,000 to $185,000.
- Increase in the limitation used in the definition of “highly compensated employee” (under Section 414(q)(1)(B)) from $125,000 to $130,000.
Those responsible for employer retirement plans should work with their service providers and payroll teams to ensure these changes are appropriately implemented.