401k Contribution Limits Raised For 2020

Earlier this month, the Internal Revenue Service (IRS) announced that workers would be able to put more money away for retirement.

HR Executive reports that the IRS issued a press release on Wednesday, November 6th, announcing that as part of its annual inflation adjustments, workers who have 401(k) plans will be able to contribute up to $19,500 during 2020. This is a $500 increase from what the IRS said workers could contribute in 2019.

For workers who are 50 years of age and above, their contribution limit for their 401K plans also increased $500, going from $6,000 in 20198 to $6,500 in 2020.  The contribution for IRA’s, however, is still set at $6,0000 annually.

Also, the IRS announced an increase in the amount for defined contribution plans from $56,000 to $57,000 as well as an increase in the limitation of the annual benefit under a defined benefit plan from $225,000 to $230,000 annually.

According to Fidelity Investments and other financial planning experts, employees who are putting aside their pay to save for retirement have now reached an all-time high. Fidelity reports that the average 401(k) contribution rate has now reached 8.8%. This figure does not include employer-match contributions, which are at 7.7% on average – raising the contribution to 13.5% contribution on average.

Kevin Barry, president of Workplace Investing at Fidelity Investments said in an earlier interview that increasing contribution rates by as little as 1% could make a significant impact on retirement savings over a period of 10 -20 years.