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2020 pension plan limits released by IRS: Your new numbers

2020 Pension Plan Limits
Jennifer Azara
by Jennifer Azara

IRS just issued new pension plan limits for next year. And the overwhelming majority are going up over this year’s numbers.

The year-end updates just keep on coming! Hot on the heels of the taxable wage base release, Notice 2019-59 gives Payroll (and your Benefits staffers) the new numbers they need to be ready for January 1.

Which pension plan limits are changing

Here are your cost-of-living adjustments, effective Jan. 1, 2020:

  • The contribution limit for 401(k), 403(b), most 457 plans, and the Thrift Savings Plan is $19,500 (a $500 increase).
  • The limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) is increased from $225,000 to $230,000.
  • The limitation for defined contribution plans under § 415(c)(1)(A) is increased by $1,000 to $57,000.
  • The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) is increased to $19,500 from $19,000.
  • The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased by $5,000 to $285,000.
  • The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased to $185,000 (a $5,000 increase).
  • The dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,130,000 to $1,150,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $225,000 to $230,000.
  • The limitation used in the definition of “highly compensated employee” under § 414(q)(1)(B) is $130,000 (from $125,000 in 2019).
  • The dollar limitation under § 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in § 401(k)(11) or § 408(p) for individuals aged 50 or over is increased by $500 to $6,500.
  • The annual compensation limitation under § 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under § 401(a)(17) to be taken into account, is increased to $425,000 (up $10,000).
  • The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts jumps to $13,500.
  • The limitation on deferrals under § 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations goes up to $19,500.
  • The compensation amount under § 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $110,000 to $115,000.
  • The compensation amount under § 1.61-21(f)(5)(iii) is increased from $225,000 to $230,000.

And which aren’t

But not everything’s changing. These three limits will hold steady in the new year:

  • The dollar limitation under § 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or § 408(p) for individuals aged 50 or over remains unchanged at $3,000.
  • The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
  • The limitation under § 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan stays at $50,000.
  • The deductible amount under § 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $6,000.
Jennifer Azara
Jennifer Azara
Jennifer has covered business and finance for more than 24 years. She has written for CFOs, credit and collections professionals and accounts payable practitioners and has spoken at industry conferences on sales and use tax compliance.