Be sure to check out the change to 401(k) contribution limits that are coming in 2020. Where you could previously contribute as much as $19,000 into your retirement plans, the IRS will allow you to contribute as much as $19,500 in 2020 for those under 50, and $26,000 for those 50 and above.
In that over-50 crowd? Good news. With the increase in the catch-up contribution limit, you may be able to defer paying income taxes on as much as $26,000 in 2020. And, catch-up contributions apply starting in the year you turn 50, so it still counts if you are 49 and facing your next birthday within the same calendar year. So, even if you don’t quite find this change in the contribution limit motivating on the basis that it enables a greener retirement future, you might find it motivating on the basis that it means less due in income taxes in the short term.
Consider the following:
You are eligible to contribute even more if you are over 50: Let us first address the myth that, for some, none of this matters because it’s too late for changes in savings behaviors to make any real difference to your retirement. It is never too early or too late to evaluate the status of your retirement savings and make shifts in your sails. Every little bit counts. And, if you are 50 years old or older, then you are eligible to contribute more than younger employees. It’s called the catch-up contribution. In 2019, over-50s could contribute up to an additional $6,000 to their 401(k) accounts. That limit goes up to $6,500 in 2020.
Dollars contributed to your 401(k) account are not taxed until they are withdrawn: Let us also address the fact that with 401(k) contributions, the dollars are not taxed until you withdraw them. With an increase to the contribution limit coming in 2020, you can defer even more of the taxes you would pay on the income you are providing to your 401(k) until a later date where you are in a lower tax bracket.
Wondering if you can capitalize on these changes to maximize your savings? Consult with your Wood + Lamping tax attorney who can help you identify the biggest opportunities to put more cash in your pocket when your hard-earned retirement arrives.