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You can save more for retirement in 2020

By: Kimberly Lankford

How much can I contribute to a 401(k) and IRA in 2020? Who qualifies to make Roth IRA contributions?

You’ll be able to save more in your employer’s retirement-savings plan in 2020. The IRS just announced that the contribution limits for 401(k)s, 403(b)s, most 457s and the federal government’s Thrift Savings Plan are increasing from $19,000 to $19,500 in 2020. Catch-up contributions for people age 50 and older are rising, too — from $6,000 to $6,500 in 2020 — bringing their total contribution limit to $26,000.

The contribution amount is not rising for IRAs — you’ll be able to contribute $6,000 in 2020, as you have in 2019, plus a $1,000 catch-up contribution if you are age 50 or older.

The income limits for contributing to a Roth IRA are increasing slightly — you can contribute to a Roth IRA in 2020 if your modified adjusted gross income is less than $139,000 if single or $206,000 if married filing jointly, and the contribution amount starts to phase out if your modified adjusted gross income is more than $124,000 if single or $196,000 if married filing jointly.

Retirement Saver’s Credit Offers an Extra Tax Break

The income limits to qualify for the retirement saver’s tax credit are also increasing slightly. You can qualify for the credit if your income is less than $32,500 for singles, $48,750 for people filing as head of household, and $65,000 for married couples filing jointly.

This frequently overlooked credit can help low- and middle-income people get an extra tax break when they save for retirement. This credit can also apply to people who are primarily retired but still freelancing or working part-time, or young people who are just getting started in their careers. The credit can reduce your tax liability by up to $1,000 per person, or $2,000 per couple, depending on your income and how much you contribute to a retirement account.

If you’re married filing jointly, up to $4,000 in contributions to a 401(k), IRA, 403(b), 457 Thrift Savings Plan or an ABLE account for people with special needs can count toward the credit, or $2,000 if you’re filing as single or head of household. The credit is worth 10%, 20% or 50% of your contribution — the lower your income, the larger of your contribution counts toward the credit.

For example, the credit is worth 50% of your contribution if you’re married filing jointly and your adjusted gross income is less than $39,000 in 2020 (with a maximum credit of $2,000 per couple), or 20% of your contribution if your AGI is $39,001 to $42,500, or 10% of your contribution if your income is from $42,501 to $65,000.

For people filing as head of household, the credit is worth 50% of their contribution if their adjusted gross income is less than $29,250 in 2020 (with a maximum credit of $1,000 per person), or 20% of your contribution if your AGI is $29,251 to $31,875, or 10% of your contribution if your AGI is $31,876 to $48,750.

For single filers, the credit is worth 50% of their contribution if their adjusted gross income is less than $19,500 in 2020 (with a maximum credit of $1,000 per person), 20% if their AGI is $19,501 to $21,250, or 10% if their AGI is from $21,251 to $32,500.

To be eligible for the saver’s credit, you must be 18 or older, not a full-time student, and not claimed as a dependent on another person’s income-tax return.

For more information about the saver’s credit, see IRS Form 8880. Also see the IRS factsheet about the saver’s credit for the income cut-offs for each of the past several years.

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