IRS Announces 2020 Retirement Plan Limits

On November 6, 2019, the IRS released Notice 2019-59, announcing COLAs that affect contribution limits for retirement plans and retirement accounts in 2020. The list below, although not exhaustive, highlights key changes that retirement plan sponsors should be aware of:

• The elective deferral limit is increasing from $19,000 to $19,500.
  
  
• The catch-up contribution limit for employees ages 50 and older is increasing from $6,000 to $6,500.
  
  
• The aggregate contribution limit for defined contribution plans is increasing from $56,000 to $57,000.
  
  
• The annual compensation limit used to calculate contributions is increasing from $280,000 to $285,000.
  
  
• The limitation on the annual benefit under a defined benefit plan is increasing from $225,000 to $230,000. (For a participant who separated from service before January 1, 2020, the limitation for defined benefit plans under Section 415(b)(1)(B) can be computed by multiplying the participant's compensation limitation, as adjusted through 2019, by 1.0176.)
  
  
• The dollar limit used in the definition of “key employee” in a top-heavy retirement plan is increasing from $180,000 to $185,000.
  
  
• The dollar limit used in the definition of “highly compensated employee” is increasing from $125,000 to $130,000.
  

The table below compares the newly announced 2020 retirement plan contribution limits with 2019 limits.