Call it a gift. Call it crazy. Call it whatever you want. But it’s good news. The IRS will let you put more money into your 401(k) account in 2020.
The maximum contribution to a 401(k) this year is $19,500, up from $19,000 in 2019. If you are age 50 or older, you can make an additional $6,500 catch-up contribution for a total of $26,000.
For IRAs, the contribution limit is unchanged at $6,000. And if you are 50 or older, the catch-up contribution remains $1000.
The overall limit for a defined contribution plan has increased to $57,000, from $56,000, while it will increase to $230,000 for defined benefit plans.
According to the White House, 38 million Americans in the private sector do not have access to retirement plans through their employers. Workplace plans are a critical way many people can bolster their savings. The administration announced a new rule in July to expand access for workers, particularly those employed by small businesses.
Saving money in tax-deferred accounts may be even more important for workers as a pathway toward a comfortable retirement since the solvency of Social Security remains in question. Next year, Social Security benefits will increase by 1.6 percent, which senior advocacy groups say is not nearly enough to keep pace with the rising cost of goods and services, including healthcare and prescription drugs.
The retirement dilemma may only get worse. A report from TD Ameritrade says millennials are more likely than older generations to withdraw money from their retirement accounts to pay for basic expenses before retirement, as well as things like weddings or taking a sabbatical. Reducing retirement dollars, plus paying taxes and penalties on the withdrawals, plus a Social Security system that’s in trouble could be a retirement disaster for millennials.