IRS Announces 2020 Pension Plan Limitations

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Today, the IRS issued Notice 2019-59, announcing the cost of living adjustments for pension plans and other retirement-related items for the tax year 2020. 

Notable Changes:

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the saver’s credit all increased for 2020.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500. The catch-up contribution limit for employees who participant in these plans also increased from $6,000 to $6,500.

$13,500 will be the new limitation for SIMPLE retirement accounts, up from $13,000.

Unchanged Items:

The annual limit for contributions to an IRA remains unchanged at $6,000. The catch-up contribution for individuals over age 50 remains at $1,000 (which is not subject to cost of living adjustments).

Cafeteria Plan Nondiscrimination Testing:

2020 limitations used for purposes of pension and cafeteria plan nondiscrimination testing increase as follows:

  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan will increase from $180,000 to $185,000 in 2020.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) will increase from  $125,000 to $130,000 in 2020.

Keep in mind that employers will use the prior year’s compensation for current plan year testing. These updates will impact the testing for the 2021 plan years.

 

Please see Notice 2019-59 for a full description of the changes for 2020.

 

Quick Reference Guide

For your convenience, Employee Benefits Corporation has prepared a quick reference guide for the current and new plan limits. Please click here to access this guide.

Categories: Benefits in General, Compliance | Tags: IRS , Pension Plans , 2020 Limits , IRS Notice 2019-59 , Highly Compensated Employee , Key Employee , Nondiscrimination Testing , IRA , 401k , 457 , 403(b) , Roth IRA | Return