The Social Security Administration (SSA) announced cost-of-living adjustments to the maximum amount of earnings that are subject to the Social Security tax, as well as a 1.6% increase to monthly Social Security and Supplemental Security Income benefits. This is good news for the nearly 69 million Americans receiving benefits, though this is a modest number compared with last year’s 2.8% increase. In comparison, the average cost-of-living adjustment (COLA) over the last decade has been 1.4%. The Social Security Wage Base will increase in 2020 from $132,900 to $137,700.
The Treasury Department also published inflation-adjusted figures for retirement account savings effective January 1, 2020: 401(k) and 403(b) limits are up, traditional IRA contribution limits stay the same, and almost all other numbers are up as well.
The amount you can contribute to your 401(k) or similar workplace retirement plan goes up by $500 to $19,500. The 401(k) catch-up contribution limit – for employees turning 50 or older anytime in 2020 – will be $6,500, up from $6,000. This is the first increase since 2015. The contribution amount for individual retirement accounts (IRA’s) remains the same for 2020 at $6,000, with a $1,000 catch-up limit if you’re 50 or older.
|Retirement Plan Limitations||2020||2019|
|Annual 401(k), 403(b) and 457 deferral limit||$19,500||$19,000|
|401(k), 403(b) and 457 contribution catch up limit||$6,500||$6,000|
|Annual contribution limit “415 limit”||$57,000||$56,000|
|Annual compensation limit||$285,000||$280,000|
|Highly Compensated employee definition||$130,000||$125,000|
|Key employee definition for top-heavy plan||$185,000||$180,000|
|Income subject to Social Security (wage base)||$137,700||$132,900|
|Annual IRA contribution limit||$6,000||$6,000|
|Annual IRA catch up contribution limit||$1,000||$1,000|
The Saver’s Tax Credit for low-to-moderate income workers will reflect modest adjustments as well. The Saver’s Credit is a tax break that’s available to many people with modest incomes, offering a way for savers to make their money work harder for them. The credit is between 10-50% of the individual’s eligible contribution up to $2,000. The limit for 2020 is $32,500 for singles, $48,750 for head of household, and $65,000 for married couples filing jointly.
Should you have any questions regarding the various limitations that apply to retirement plans, including some that are not included in the above table, please contact our retirement plan services team.