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Tuesday July 7, 2020
IRA and 401(k) Contributions in 2020
On November 6, 2019, the IRS announced the 401(k) and IRA contribution limits for 2020. The IRA limit remains at $6,000 in 2020. Individuals over age 50 may make a catch-up contribution of $1,000, for a total transfer of $7,000 in 2020.
Traditional IRA contributions from pre-tax income are tax deductible. The traditional IRA has two main tax benefits – contributions are tax deductible and grow tax free. If you are covered by a qualified retirement plan at your workplace, the IRA deduction may be reduced or phased out.
The Roth IRA phaseout limits also increase in 2020.
If your employer offers both a traditional 401(k) and a Roth 401(k) plan, you may allocate your employee contribution to one or both funds. The traditional 401(k) amounts are tax deductible, but the Roth 401(k) contributions are after-tax.
Some employers choose to match the employees' 401(k) contributions. This is a good way to encourage employee participation in the 401(k) plan. The employer match is used to fund the employee’s traditional 401(k) account. The employee may still make contributions to a Roth or traditional 401(k) account up to the $19,500 or $26,000 limit.
Published November 8, 2019