IRA/Retirement Plan Contribution Changes, Medicare Premiums, and Social Security Cost of Living Adjustments for 2020

As a new year approaches, now is a good time to review the upcoming changes across a number of areas that affect financial planning. IRA and retirement plan contribution limits, Medicare premiums, and Social Security cost of living adjustments are all experiencing changes for the 2020 calendar year. We’ve compiled the specifics here, to help individuals learn more about what’s changing and to start thinking about how these changes fit into overall financial plans.

IRA contribution limits

The maximum amount you can contribute to a Traditional IRA or a Roth IRA in 2020 is $6,000 (or 100% of your earned income, if less), which is unchanged from 2019. The maximum catch-up contribution for those ages 50 or older remains an additional $1,000. You can contribute to both a Traditional IRA and a Roth IRA in 2020, but your total contributions can’t exceed these annual limits.

Traditional IRA income limits

The income limits for determining the deductibility of Traditional IRA contributions in 2020 have increased. If your filing status is single or head of household, you can fully deduct your IRA contribution up to $6,000 in 2020 if your modified adjusted gross income (MAGI) is $65,000 or less (up from $64,000 in 2019). If you’re married and filing a joint return, you can fully deduct up to $6,000 in 2020 if your MAGI is $104,000 or less (up from $103,000 in 2019). Note that these figures assume you are covered by a retirement plan at work.

If you’re not covered by an employer plan but your spouse is, and you file a joint return, your deduction is limited if your MAGI is $196,000 to $206,000 (up from $193,000 to $203,000 in 2019) and eliminated if your MAGI exceeds $206,000. Single filers, head-of-household filers, and married joint filers who are not covered by an employer plan can deduct the full amount of their contributions.

Roth IRA income limits

The income limits for determining how much you can contribute to a Roth IRA have also increased for 2020. If your filing status is single or head of household, you can contribute the full $6,000 to a Roth IRA if your MAGI is $124,000 or less (up from $122,000 in 2019). And if you’re married and filing a joint return, you can make a full contribution if your MAGI is $196,000 or less (up from $193,000 in 2019). Again, contributions cannot exceed 100% of your earned income.

Employer retirement plans

Most of the significant employer retirement plan limits for 2020 have also increased. The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan is $19,500, up from $19,000 in 2019. This limit also applies to 403(b) and 457(b) plans, as well as the Federal Thrift Plan. If you’re age 50 or older, you can also make catch-up contributions of up to an additional $6,500 to these plans in 2020. (Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.)

The maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) or profit-sharing plan) in 2020 is $57,000, up from $56,000 in 2019, plus age 50 catch-up contributions. This includes both your contributions and your employer’s contributions.

If you have any questions about these new 2020 contribution limits, please contact your JNBA Advisory Team.

Medicare and Social Security adjustments

The Centers for Medicare & Medicaid Services (CMS) has announced the new supplemental Part B and prescription drug Part D premiums for calendar year 2020, which are detailed in the tables below. The 2020 standard Part B premium has increased to $144.60/month on average (or higher, depending on your income, from $135.50/month in 2019).

The Social Security cost of living adjustment (COLA) is 1.6 percent for 2020, which in most cases will be more than enough to cover the roughly $9 increase in premiums for Part B.  If a Social Security recipient’s COLA isn’t enough to cover the full premium increase for Part B, that person’s Part B premiums can only increase by the amount of the COLA.

 

 

 

PLEASE NOTE: JNBA is neither an attorney nor accountant, and no portion of the above should be construed as legal or accounting advice. All legal and accounting issues should be addressed with the legal and accounting professionals of your choosing.

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, Inc.

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