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.
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, and the IRS announced the official 2020 contribution rules early in November 2019.
There are three separate limits each year:
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 predicted correctly, with a slight increase in 401(k) contribution limits for 2020.
If your employer has a 401(k) matching plan, the limit on this benefit is $57,000 for your contributions plus the employer’s. This limit also applies to 403(b) and Thrift Savings Plans.
Another critical thing to know about 401(k) contribution limits is that your contribution is limited by your income. The total annual contributions to all accounts in plans through one employer are limited to $57,000, or your annual compensation if less than $57,000. If you make catch-up contributions, this amount increases to $63,500 for 2020.
The chart below shows contribution limits for the past several years, with limits for 2020.
|401(k) Contribution Limits by Year|
|Year||Employee Contribution Limit||Total Limit||Catch-up Contribution Limit|
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.
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.