IRAs and employer-sponsored retirement plans are subject to annual contribution limits set by the federal government. The limits are adjusted periodically to compensate for inflation and increases in the cost of living.
For the 2020 tax year, you can contribute up to $6,000 (unchanged from 2019) to all IRAs combined (the limit is adjusted periodically for inflation). If you have a traditional IRA as well as a Roth IRA, you can only contribute a total of the annual limit in one year, not the annual limit to each. If you are age 50 or older, you can also make a $1,000 annual "catch-up" contribution.
Work-based retirement plans
Work-based retirement plans such as 401(k)s and 403(b)s have a $19,500 contribution limit in 2020 (up from $19,000 in 2019); individuals age 50 and older can contribute an extra $6,000 each year as a catch-up contribution. [Section 403(b) and 457(b) plans may also provide special catch-up opportunities.]
You can contribute up to $13,500 to a SIMPLE IRA or SIMPLE 401(k) plan in 2020, (up from $13,000 in 2019) and an extra $3,000 catch-up contribution if you are age 50 or older. Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income, except for any after-tax contributions you've made, and the taxable portion may be subject to a 10% federal income tax penalty if taken prior to reaching age 59½ (unless an exception applies).
If you participate in both a traditional IRA and an employer-sponsored plan, your IRA contributions may or may not be tax deductible, depending on your adjusted gross income. Due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, penalty-free withdrawals of up to $100,000 may be allowed in 2020 for qualified individuals affected by COVID-19. Individuals will be able to spread the associated income over three years for income tax purposes and will have up to three years to reinvest withdrawn amounts.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
CRN202208-269013 This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. The material presented was created by an outside vendor (or third party).