On November 6th, 2019, the IRS announced the cost of living adjustments affecting the dollar limitations for retirement plans.

Contribution and benefit increases are based on a calculated change in the Consumer Price Index and are intended to allow participant contributions and benefits to keep up with the “cost of living” from year to year. Here are some highlights from the 2020 changes:

• The elective deferral limit for 2020 has increased from $19,000 to $19,500. This deferral limit applies to each participant on a calendar year basis. The limit applies to 401(k) plans, including Roth and pre-tax contributions, 403(b) and 457(b) plans.
• Catch-Up contributions increased to $6,500 and are available to all participants age 50 or older in 2020.
• The 2020 annual contribution limit has increased to $57,000. This limit indicates the maximum allowable dollar amount that can be contributed to a participant’s retirement account in a defined contribution plan. The limit includes both employee and employer contributions as well as any allocated forfeitures. For those over age 50, the annual addition limit increases by $6,500 to include catch-up contributions.
• The annual benefit limit which applies to participants in a defined benefit plan has increased to $230,000 for 2020.
• Compensation thresholds that affect retirement plans have also increased for 2020. The maximum amount of compensation that can be considered in retirement plan compliance has been raised to $285,000. In addition, income subject to Social Security taxation has increased to $137,700 and thresholds for determining key and highly compensated employees have increased to $185,000 and $130,000 respectively.

The increases in the annual limits allow employers and participants to contribute more toward retirement.