2020 401(k) Contribution Limits

October 23, 2019

How much can you save in a 401(k) in 2020? We researched contribution limits for 2020 401(k) plans, so you can start planning your retirement savings for the coming year. The IRS sets limits on how much money you can put into a 401(k) retirement account annually, and announces contribution limits late each fall. You don’t have to wait for the official numbers to plan for your retirement savings in 2020. You can get a head start on your retirement planning with our 401(k) contribution limits projections.

401k Contribution Limits

2020 401(k) Contribution Limit Predictions

The IRS calculates maximum 401(k) contribution amounts based on annual inflation and cost of living. Management consulting firm Mercer is known for making annual contribution limit projections. The firm considers historical limits and current economic conditions. Mercer predicts a slight increase in 401(k) contribution limits for 2020.

  • An increase from $19,000 to $19,500 for employee contributions
  • An increase from $6,000 to $6,500 for catch-up contributions

Mercer did not publish predictions for employer contributions, but some well-regarded finance bloggers are predicting an increase from $56,000 to $57,000 for total contributions. They predicted contribution limits will probably also apply to other retirement savings plans, including 403(b), many 457 plans and Thrift Savings Plans.

How the IRS Calculates 401(k) Contribution Limits for 2020

Contribution limits are calculated using the IRS’s cost-of-living adjustment and the Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers (CPI-U). These figures include third-quarter CPI-U, so the IRS is expected to announce official 2020 contribution rules in late October or early November.

There are three separate limits each year:

  • Employee contribution limit: This is the contribution limit for an individual per calendar year. You can save up to this amount in your 401(k) in a given year. Contributions come out of payroll wages, and these pre-tax deductions reduce your taxable income.
  • Total contribution limit: Many employers provide matched contributions to 401(k) savings as a benefit. Employer limits are much higher than individual limits, so it pays to work for a company that contributes to your 401(k). The total contribution is the employee contribution plus the employer match. This formula doesn’t include any catch-up contributions if you’re over 50.
  • Annual income restriction: The total contribution limit can’t exceed your annual income. So, if the annual limit is $56,000 and you make $50,000, your total contribution limit will be $50,000.
  • Catch-up limit: Since 2001, the IRS has allowed additional contributions for older Americans to help prepare for retirement. If you are age 50 or older by the end of the calendar year, you are allowed to contribute additional money toward your 401(k) each year. Even if your 50th birthday falls on December 31, you can still make catch-up contributions up to that year’s limit. Add the catch-up limit to employee and employer contribution limits, and you can add thousands of dollars to boost your IRA balance before you retire.

2020 Compensation Limit for 401(k)s

Another critical thing to know about IRA contribution limits is that your contribution can get phased out altogether if you are a highly-compensated employee. The IRS sets limits for the maximum allowable income to be eligible to make 401(k) contributions. These limits also apply to other tax-deferred retirement accounts.

The IRS calculates the maximum allowable income as five times the maximum total contributions limit. For example, in 2019, the ceiling was an annual salary of $280,000 or more. With a projected 2020 401(k) total contribution of $57,000, the expected maximum salary for eligibility is $285,000.

Historic 401(k) Contribution Limits

The chart below shows contribution limits for the past several years, with projected limits for 2020.

401(k) Contribution Limits by Year
Year Employee Contribution Limit Total Limit Catch-up Contribution Limit
2020* $19,500 $57,000 $6,500
2019 $19,000 $56,000 $6,000
2018 $18,500 $55,000 $6,000
2017 $18,000 $54,000 $6,000
2016 $18,000 $53,000 $6,000
2015 $18,000 $53,000 $6,000
2014 $17,500 $52,000 $5,500
2013 $17,500 $51,000 $5,500
2012 $17,000 $50,000 $5,500
2011 $16,500 $49,000 $5,500
2010 $16,500 $49,000 $5,500
* Projected Figures

When 2020 401(k) Limits Go Into Effect

Contribution periods follow the tax year calendar, which runs from January 1 to December 31 every year. With this in mind, you can make contributions up to the 2019 limit until December 31, and after that, you can contribute up to the amount of 2020 401(k) limits.

Concluding Thoughts on 401K Limits

No one can live comfortably on Social Security benefits. It pays to start preparing early to maximize your 401(k) contributions. While it is impossible to know for sure what the contribution limits will be for 2020, it’s reasonable to assume limits will increase slightly from the current year. Plan now to maximize your retirement savings in 2020.