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2020 Cost of Living Adjustments for Retirement Plans

The Internal Revenue Service recently announced its cost-of-living adjustments applicable to dollar limitations on benefits and contributions for retirement plans generally effective for Tax Year 2020 (see IRS Notice 2019-59). Most notably, the limitation on annual salary deferrals into a 401(k) plan will increase from $19,000 to $19,500. Other notable limitations are as follows:

LIMIT

2019 2020

401(k)/403(b) Elective Deferral Limit (IRC § 402(g))

 

The annual limit on an employee’s elective deferrals to a 401(k) or 403(b) plan made through salary reduction.

$19,000 $19,500

Government/Tax Exempt Deferral Limit (IRC § 457(e)(15))

 

The annual limit on an employee’s elective deferrals concerning Section 457 deferred compensation plans of state and local governments and tax-exempt organizations.

$19,000 $19,500

401(k)/403(b)/457 Catch-up Limit (IRC § 414(v)(2)(B)(i))

 

In addition to the regular limit on elective deferrals described above, employees over the age of 50 generally can make an additional “catch-up” contribution not to exceed this limit.

$6,000 $6,500

Defined Contribution Plan Limit (IRC § 415(c))

 

The limitation for annual contributions to a defined contribution plan (such as a 401(k) plan or profit sharing plan).

$56,000 $57,000

Defined Benefit Plan Limit (IRC § 415(b))

 

The limitation on the annual benefits from a defined benefit plan.

$225,000 $230,000

Annual Compensation Limit (IRC § 401(a)(17))

 

The maximum amount of compensation that may be taken into account for benefit calculations and nondiscrimination testing.

$280,000

 

($415,000 for certain gov’t plans)

$285,000

 

($425,000 for certain gov’t plans)

Highly Compensated Employee Threshold (IRC § 414(q))

 

The definition of an HCE includes a compensation threshold for the prior year. A retirement plan’s discrimination testing is based on coverage and benefits for HCEs.

$125,000

 

(for 2020 HCE determination)

$130,000

 

(for 2021 HCE determination)

Key Employee Compensation Threshold (IRC § 416)

 

The definition of a key employee includes a compensation threshold. Key employees must be determined for purposes of applying the top-heavy rules. Generally, a plan is top-heavy if the plan benefits of key employees exceed 60% of the aggregate plan benefits of all employees.

$180,000 $185,000

SEP Minimum Compensation Limit (IRC § 408(k)(2)(C))

 

The mandatory participation requirements for a simplified employee pension (SEP) includes this minimum compensation threshold.

$600 $600

SIMPLE Employee Contribution (IRC § 408(p)(2)(E))

 

The limitation on deferrals to a SIMPLE retirement account.

$13,000 $13,500

SIMPLE Catch-up Limit (IRC § 414(v)(2)(B)(ii)))

 

The maximum amount of catch-up contributions that individuals age 50 or over may make to a SIMPLE retirement account or SIMPLE 401(k) plan.

$3,000 $3,000

Social Security Taxable Wage Base

 

See the 2020 SS Changes Fact Sheet.

This threshold is the maximum amount of earned income on which Social Security taxes may be imposed (6.20% paid by the employee and 6.20% paid by the employer).

$132,900
Jackson Lewis P.C. © 2019

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About this Author

Keith A. Dropkin, Jackson Lewis, welfare benefit plans lawyer, payroll taxes attorney
Principal

Keith Dropkin is a Principal in the White Plains, New York, office of Jackson Lewis P.C.

Mr. Dropkin counsels clients regarding various benefit issues including fiduciary duty obligations, corrections under the DOL and IRS compliance programs, the drafting and design of pension and welfare benefit plans, payroll taxes and those issues arising in mergers and acquisitions. He has represented clients ranging from self-employed individuals to Fortune Top 50 companies. Mr. Dropkin speaks and writes regularly about employee...

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