2020 IRA, 401k, and Roth IRA contribution limits – Roth IRA eligibility, IRA tax deductions, and more!

With a new year comes new IRS rules. Here’s what has changed for 2020 in regards to how much you can contribute to your IRA, 401k, and Roth IRA – Along with various income restrictions to be eligible.

2020 ira roth 401k contribution limits

2020 IRA and ROTH IRA Contribution Limits

For 2020, your allowed annual contribution to IRAs, and Roth IRAs, has stayed the same from 2019.

You are able to contribute up to $6,000 to a traditional IRA, or a Roth IRA. If you are age 50 or older, that limit jumps to $7,000.

And remember, the $6,000 or $7,000 limit is the combined contribution for all IRAs and Roth IRAs. You can not contribute $6,000 to a traditional IRA and $6,000 to a Roth. You may do $3,000 to a traditional and $3,000 to a Roth, but in total contributions can not exceed $6,000 or $7,000.

Monthly Savings to Maximize IRA and Roth IRAs

For those looking to maximize your IRA and Roth IRA contributions in 2020, how much will you need to save each month, or each paycheck?

For those under age 50 with a $6,000 annual IRA contribution limit:

  • $500 per month, or
  • $250 per paycheck if paid twice per monthly, or
  • $230.76 per paycheck if paid bi-weekly (assumes 26 pay periods in 2020)

For those age 50 or over with a $7,000 annual IRA contribution limit:

  • $583.33 per month, or
  • $291.66 per paycheck if paid twice per monthly, or
  • $269.23 per paycheck if paid bi-weekly (assumes 26 pay periods in 2020)

2020 401k Contribution Limits

Unlike IRA contribution limits, the amount you are able to save in your 401k has been increased by $500!

This year you are allowed an annual contribution of up to $19,500 in your 401k if you are under age 50. This is a $500 increase from 2019.

If you are age 50 or older, you are able to contribute and extra $6,500, for a total of $26,000 in 2020.

For those under age 50 with a $19,500 401k annual contribution limit, that means:

  • $1,625 per month, or
  • $812.50 per paycheck if paid twice per month, or
  • $750 per paycheck if paid bi-weekly (assumes 26 pay periods in 2020)

For those age 50 or over with a $26,000 annual 401k contribution limit:

  • $2,166.66 per month, or
  • $1,083.33 per paycheck if paid twice per month, or
  • $1,000 per paycheck if paid bi-weekly (assumes 26 pay periods in 2020)

2020 IRA Deduction Income Limits

Those with a modified adjusted gross income above a certain threshold and have a qualified retirement plan at their place of employment (a 401k, 403b, most 457s, TSP, etc.) are not allowed to deduct their annual IRA contributions.

For 2020, that limit is:

For single filers:

  • Deductions begin to phase out at $65,000 in income.
  • Deductions are not allowed with income above $75,000.

For married filers:

  • Deductions begin to phase out at $104,000 in income.
  • Deductions are not allowed with income above $124,000.

2020 Roth IRA Income Limits

In order to be able to contribute to a Roth IRA, you must be under a certain level of income. For 2020 the income cap for Roth IRA eligibility is:

For single filers:

  • Eligibility is limited for those with income greater than $124,000.
  • Eligibility is eliminated for those with income above $139,000.

For married filers:

  • Eligibility is limited for those with income greater than $196,000.
  • Eligibility is eliminated for those with income above $206,000.

2020 Income Limits for Saver’s Credit Eligibility

Lastly for 2020, the income limit to qualify for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) has changed in 2020.

The Saver’s Credit allows those with low income to take an increased tax credit for qualified retirement account (401k, IRA, and now in 2020 also ABLE accounts) contributions. Savers are given a credit of a certain percentage of their contribution based on their income. For example, if you qualify for a 50% credit and you contribute $3,000 to an IRA, you will get an additional tax credit of $1,500. A great deal for those who are able to pinch pennies or reduce their taxable incomes to qualify!

For single filers:

  • For a 50% credit, your Adjusted Gross Income (AGI) must be below $19,500.
  • For a 20% credit, your AGI must be below $21,250.
  • For a 10% credit, your AGI must be below $32,500.

For married couples:

  • For a 50% credit, your Adjusted Gross Income (AGI) must be below $39,000.
  • For a 20% credit, your AGI must be below $42,500.
  • For a 10% credit, your AGI must be below $65,000.

That’s all for now – Happy investing in 2020!

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