Retirement in 2020
Now that we are a couple of weeks into the new year, I have begun getting planning questions from clients. Many of these questions are related to retirement vehicles, what the differences are between each and what the limits are for them in this new year.
Let’s start with an Indi
vidual Retirement Account (IRA). This account allows an individual to contribute up to $6,000 or $7,000 for individuals over the age of 50 in the tax year 2020. There are some limits and factors to know about these amounts. If the individual also works at a company that offers a 401(k) and makes more than $75,000 ($124,000 for married couples filing jointly) they are no longer able to contribute to a traditional tax-deductible IRA. If an individual wants to contribute to a ROTH (after-tax) IRA, they can choose to if their income is below $139,000 ($206,000 for married couples filing jointly).
I will often talk to clients and then switch to discussing 401(k), 403(b), and 457(b) options and limits. It is important to point out that these options are offered by different organizations for their employee’s benefit. The contribution limits increase for these in 2020 to $19,500. 401(k), 403(b), and 457(b) plans offer a catch-up option for employees over the age of 50 to increase this amount by $6,500 to a total of $26,000 for the year. However, 457(b) plans have an additional catch up option for those individuals who are within three years of traditional retirement age of 65 up to a total catch up of $19,500.
I do want to also point out that you can do the maximum contribution to a 401(k), or a 403(b) plan and contribute to a 457(b) plan. You cannot, however, do the maximum contribution to multiple 401(k) or 403(b) plans or do the maximum contribution to a 401(k) plan and a 403(b) plan.