The Solo 401(k) contribution limit will increase in 2020, allowing employees to contribute significantly more than they did in 2019.
401(k) Contribution Limit Increase in 2020
The Internal Revenue Service (IRS) announced today that the contribution limits for 401(k) employees, including the Solo 401(k), will increase from 2019. The 401(k) plan contribution will increase to $19,500 next year.
These changes came along with other announcements today in Notice 2019-59, which can be found on the IRS website. Highlights of the recent changes also include employee contributions for 403(b), most 457 retirement plans and the federal government’s Thrift Savings Plan, which all increase to $19,500 in 2020.
Next year’s 401(k) contribution limit increase will be up $500 from the 2019 contribution limits for the 401(k) plan. SIMPLE retirement accounts will also increase by $500, up to $13,500 in 2020.
Catch-Up Contribution Limit 2020 Increase
The catch-up contribution for plan participants age 50 and over will increase from $6,000 to $6,500 for all previously mentioned plans.
It will increase by $1,500 for the Solo 401(k).
Solo 401(k) 2020 Contribution Increase
Individuals under age 50 who participate in the Solo 401(k) plan will be able to contribute up to $57,000 in 2020. This increase is up $1,000 from the current 2019 contribution limit of $56,000.
Individuals age 50 and over will be able to make a catch-up contribution of $63,500.
Catch-up Contribution Advantage
If you are over age 50, you are eligible to make catch-up contributions, which will allow you to claim significant tax deductions on your annual tax bill. Catch-up contributions are beneficial for individuals who are slightly behind on building their retirement nest egg.
As soon as you turn 50, it’s important to make financial adjustments in order to reach the maximum and save as much as the government permits.
If you generate self-employment or you are a sole-proprietor, you can establish the Solo 401(k) plan and make even higher contributions. The high contribution limits of the Solo 401(k) make it an attractive retirement vehicle for individuals who started saving for retirement late in the game.
You can find this information in greater detail in Notice 2019-59 or the IRS News Release.