By Matthew Gaude & Shawn McGuire
One of the most common questions we get as financial advisors is Am I saving enough for retirement?
Thanks to advancements in technology and medicine, we are living longer than ever, which makes that question more important than ever. To help out, the government gives us tax-advantaged ways to save for retirement so that we can make the most of our savings. There are limits to how much you can save, though, with tax-advantaged retirement accounts. Luckily, most of those limits are increasing in 2020.
401(k) Contribution Limits Increase (1)
The 401(k) is the most common type of qualified retirement plan, with about a third of American workers participating in one. (2) The good news is that the contribution limits are increasing in 2020. Workers will be able to save $500 more, for a total of $19,500 in their 401(k) plans this coming year.
Plan participants age 50 and over get to double that increase. They are eligible to make catch-up contributions, designed to help those who are behind in their savings catch up as they near retirement. For 2020, the catch-up contribution limit is increasing from $6,000 to $6,500. That means that a 401(k) plan participant over age 50 can contribute up to $26,000 to their account in 2020.
This same increase in limits from $19,000 a year to $19,500 a year also applies to 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan. SIMPLE plan limits are increasing from $13,000 to $13,500 for the coming year.
Income Limits For Contributions & Deductions Increase
Other 2020 increases include the income limitations on eligibility to make deductible contributions to a traditional IRA and the income limitations on eligibility to make Roth IRA contributions.
Single tax filers with access to a workplace retirement plan will be eligible to deduct contributions to an IRA if they make under $65,000 a year, with the deduction gradually phasing out until they have $75,000 of income. For married taxpayers with access to a workplace retirement plan, the phaseout range is now $104,000 to $124,000, which is $1,000 higher than in 2019. For those without access to a workplace that have spouses that do have access, the phaseout range has increased by $3,000 to $196,000 to $206,000.
More people will be eligible to contribute to a Roth IRA in 2020. The income limit for singles and heads of households has increased $2,000 to $139,000, with a phaseout beginning at $124,000 of annual income. For married taxpayers, the phaseout for eligibility begins at $196,000 and anyone making over $206,000 cannot contribute to a Roth IRA for 2020.
One important thing to note is that the actual contribution limit for IRAs has not changed. It remains $6,000 a year with a $1,000 catch-up contribution available to those 50 and older.
2020 Key Financial Data Card
Attached is a 2020 Key Financial Data document that shows you the 2020 tax rates and brackets, standard deductions, Retirement plan contribution limits, Individual retirement account limits, Health Savings Accounts limits as well as other important limits and deductions for the 2020 calendar year. To download, click here.
How Much Should You Be Saving For Retirement?
Do you know if you are saving enough for retirement? Do you even know if you should be taking advantage of these increased contribution limits in 2020? A recent study found that 46% of Americans don’t know how much they should be saving and are just guessing. (3)
If you aren’t confident that you know how much you should be saving for retirement, we can help you with that. Call our office at 770-552-5968 or email email@example.com. Or, if you prefer, you can simply click here to schedule an appointment online.
Matthew Gaude is an *investment advisor representative and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. Working first as a commodity broker and then as a Business Development Manager for a national broker-dealer in previous jobs, he has the insight and experience to help clients understand the complexities of the market and implement strategies to minimize risk. To learn more about Matthew, connect with him on LinkedIn or visit www.liveoakwm.com.
Shawn McGuire is a financial advisor and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. He has worked in financial services since 2002 in positions ranging from financial advisor to stock broker and portfolio manager. As a CERTIFIED FINANCIAL PLANNER™ professional, he is trained to help clients with virtually all their financial needs. To learn more about Shawn, connect with him on LinkedIn or visit www.liveoakwm.com.
Securities offered through American Portfolios Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through *American Portfolio Advisors, Inc., a SEC Registered Investment Advisor. Live Oak Wealth Management, LLC is independently owned and not affiliated with APFS or APA.
Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc. (APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk, and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. Seek tax advice from a tax professional.