The Internal Revenue Service recently issues some great news for investors – Retirement account holders will now have higher contribution limits starting in 2020. What does this mean? A larger percentage of your income can be considered as tax-exempt as long as it’s being put towards a retirement account. The announcement came among other tax law changes associated with the new year and will certainly serve to save Americans moving forward.
See below for more details on the change:
Beginning in the tax year 2020, holders of the following accounts will be able to increase their individual contributions from $19,000 to $19,500:
- 401(k) plans
- 403(b) plans
- Most 457 plans
- Thrift Savings Plans
- Profit-Sharing Plans
- Cash Balance Pension Plans
The increase in yearly contribution limit gives taxpayers an additional $500 per year to put towards retirement.
If you are 55 years or older, you also have the added benefit of your catch-up contribution limit being raised. Catch-up contributions are for nearly retirement-age individuals to boost their overall retirement account numbers in their final years before leaving the workforce.
This is an amount that’s tacked onto your yearly retirement contribution maximums. In 2019, qualified citizens could put up to an additional $6,000 into their accounts as a catch-up contribution. Now, the limit has been raised to $6,500.
In total, this means that anyone 55+ can contribute the new $19,500 value into their retirement, plus $6,500 more on top of that for a grand total of $26,000 per year. The new allowance is expected to make a positive impact across the country, especially for those in this age group.
Next Steps For 2020
This new development should not be taken lightly. If you are able to increase, or better yet, max out your retirement contributions in 2020, we highly recommend doing so for a number of reasons.
First, it’s money that, when paired with an employer match, could add up to $2,000 into your retirement account per year. That’s money that will not go unnoticed when it’s time to punch your last timecard.
Second, keep in mind that these contributions are tax-exempt, meaning that on top of the $2,000 value we just mentioned, there’s also a value to not having to pay taxes on it. Any way you slice it, this looks like a great opportunity for Americans to give themselves a security blanket that’ll keep them just a little bit warmer as they age.
Whatever you have been contributing up until now, take advantage of this allowance by increasing your contribution as high as you can so that you don’t retire, leaving money on the table.
If you would like to learn more about how we can help you and your business improve its accounting practices, reach out to our team. For more information on other accounting topics, check out our blog.