Larger contribution for workplace retirement plans
If you have a retirement plan at work, like a 401(k), 403(b) or 457 plan, you will be able to save more per year in 2020. Opens in new window The IRS increased the maximum contribution limit to $19,500, which is $500 more than 2019.
In addition, if you are 50 or older, you can add even more money through an extra catch-up contribution, and the IRS has increased this limit as well. In 2020, the maximum catch-up contribution can be $6,500, versus $6,000 in 2019. Taking advantage of this increase is one of the top ways to boost your retirement savings.
IRA contributions stay the same, but higher income eligibility
While the IRS gave a boost to workplace retirement plans, they did not increase the contributions limits for Individual Retirement Plans outside of work. Opens in new window The most individuals can add for 2020 will be $6,000, the same as 2019. If you are older than 50, you can also make a catch-up contribution into an IRA. This will be an extra $1,000 for 2020, also the same as 2019.
However, the IRS did increase the income eligibility limits for IRAs in 2020. Depending on your income, the amount you can contribute per year starts phasing out until you are blocked out completely of using certain IRAs because your income is too high.
For a Roth IRA in 2020, the individual income phaseout range is $124,000 to $139,000 Opens in new window, so someone earning over $139,000 cannot use this account. These limits are $2,000 higher versus 2019. For married taxpayers filing jointly, the income phaseout range starts at $196,000 before it phases out completely at over $206,000. These limits are $3,000 higher than 2019.
If you have a retirement plan at work, there is also an income phaseout where you lose the deduction on a Traditional IRA. Once again, these limits have gone up for 2020. The individual phaseout range is between $65,000 and $75,000, and for married taxpayers filing jointly, the phaseout range is between $104,000 to $124,000. Both categories are $1,000 higher than 2019.
Larger contribution for health savings accounts
If you have a high deductible health insurance plan, there are a few savings accounts that let you put money aside for health care costs and contributions are tax-deductible. The IRS has increased how much you can put into these account Opens in new window for 2020. For health savings accounts, or HSAs, individuals will be able to put in $3,550 per year versus $3,500 in 2019. Families will be able to contribute up to $7,100 per year, versus $7,000 in 2019.
The IRS has also increased the limit for flexible savings accounts. It will be $2,750 per year in 2020, versus $2,700 in 2019. With these accounts, you typically need to spend all your money by the end of the year, versus HSAs which can let you roll unspent money over for future use.
Miscellaneous tax changes
Beyond these major categories, the IRS has also listed out a variety of other upcoming new tax law updates Opens in new window including:
- The maximum Earned Income Credit for families with three or more qualifying children will be $6,660 in 2020 versus $6,557 in 2019.
- The monthly limitation for the qualified transportation fringe benefit will be $270, up from $265.
- The estate tax exclusion will increase to $11,580,000, up from $11,400,000. However, the annual gift tax limit will remain $15,000.
- The Alternative Minimum Tax exemption will go up to $72,900 for individuals and $113,400 for married couples filing jointly in 2020, versus $71,700 and $111,700 in 2019.
- The foreign earned income exclusion will be $107,600 in 2020, up from $105,900.