For employees age 50 and older, retirement plan cap goes up.
The annual tax-deferred amounts workers can set aside for their retirement will increase for 2020, the Internal Revenue Service (IRS) has announced.
Next year, the contribution limit for employees who take part in a 401(k) or similar plan, such as a 403(b), 457 or Thrift Savings Plan, will be $19,500, up from $19,000. For workers 50 and older, the additional so-called catch-up limit goes from $6,000 to $6,500, for a total limit of $26,000.
In a 401(k) account, taxes are not paid until the account holder begins withdrawing the money. Withdrawals are taxed as ordinary income. If a holder withdraws money before age 59 1/2, he or she is assessed a 10 percent surtax.
In addition, the IRS announced increased limits on annual income to determine if a contribution to a traditional individual retirement account (IRA) is tax deductible. Higher income limits also apply for contributions to a Roth IRA, on which taxes are paid initially but money grows tax free. Those increases on income limits are from $1,000 to $3,000 depending on your marital status and whether you and/or your spouse qualifies for a workplace retirement plan.
The new limits are listed on the IRS website.
Income tax brackets also will change, with each increase in marginal tax rates kicking in at a slightly higher income level.