|
|
While we’ve been busy providing you with some basic information on pension plans, relevant governmental agencies have been busy coming up with the annual inflation adjustments for pension plans and other retirement-related items, as well as for more than 60 tax provisions for year 2020.
It is common knowledge that the cost of living adjustment (COLA) is an increase made to Social Security and Supplemental Security Income to counteract the effects of inflation.
Equally important, employment contracts and pension benefits are also tied to a cost-of-living index, typically to the consumer price index, to maintain the buying power of retirement payouts and to offset the effects of inflation on retirement income.
|
|
|
|
|
|
Social Security Recipients and Federal retirees will receive a 1.6% COLA adjustment in 2020 as determined by the Consumer Price Index (CPI) upward trend.
As an additional note, you should know that COLAs are effective each December first. Federal Employees' Retirement System (FERS) and FERS Special Cost-of- Living Adjustments are not provided until age 62, except for disability, survivor benefits, and other special provision retirements. For Civil Service Retirement System or Organization and Disability Retirement System benefits, the increase percentage is applied to the monthly benefit amount before any deductions, and is rounded down to the next whole dollar.
As regards the pension plans, Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost-of-living increases.
The adjustments are to be made under adjustment procedures similar to those used to adjust benefit amounts under the Social Security Act. Other limitations applicable to deferred compensation plans are also affected by these adjustments.
|
|
As such, just a few days ago, the IRS announced the cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020 in Notice 2019-59 available on IRS.gov.
Here are the highlights of changes 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 aged 50 and over who participate in these plans is increased from $6,000 to $6,500.
|
|
|
|
|
|
|
|
The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase- outs of the deduction do not apply.)
|
|
|
Here are the phase-out ranges for 2020:
|
|
- For single taxpayers covered by a workplace retirement plan, the phase- out range is $65,000 to $75,000, up from $64,000 to $74,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000, up from $193,000 and $203,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
|
|
|
The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000.
|
|
|
|
|
|
The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
|
|
|
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.
|
|
|
|
The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
It is the appropriate moment to remind you that, if you want to stay up-to-date with the most relevant news and information concerning taxes and other financial topics, all you need to do is keep up with our newsletters. Of course, you should also never forget that advice from a tax professional is always the best option in all your dealings with the IRS.
|
|
|
|
