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The Retirement IRS Limit Cheat Sheet

By Ellevest Team

Ah, the IRS, metaphor for complicated bureaucracy and endless rules and forms. To be fair, those rules and forms allow the government to do things like collect taxes to fund social services. Kind of important … but still. Lots of rules. And a ton of those rules affect investing for retirement, so we rounded them up in one place.

The Retirement IRS Limit Cheat Sheet

Below are some of the many limits that affect your retirement savings for the 2020 tax year.*

Contribution limits on retirement accounts

Annual 401(k) contribution limit

$19,500 if you’re under 50 years old, and $26,000 if you’re over 50. If you have both a traditional and a Roth 401(k), that’s the total limit you can contribute across both accounts.

Annual IRA contribution limit

$6,000 if you’re under 50, and $7,000 if you’re over 50. Again, this is the total contribution limit across both traditional and Roth IRAs.

Annual SEP IRA and Solo 401(k) contribution limits

25% of your “net earnings from self-employment” or $57,000, whichever is lower.

Annual SIMPLE IRA and SIMPLE 401(k) contribution limits

$13,500 if you’re under 50, and $16,500 if you’re over 50. (Btw, these count toward your overall 401(k) contribution limit, too.)

Income limits to contribute to a Roth IRA

Depending on your modified adjusted gross income (MAGI), you might be partially or fully ineligible to contribute to a Roth IRA. Note that these limits don’t apply to Roth 401(k)s. (Those don’t have income limits at all.)

If your filing status is single, head of household, or married filing separately

If your MAGI is over $139,000, you can’t contribute to a Roth IRA. If it’s between $124,000 and $139,000, you can contribute a reduced amount. And if it’s less than $124,000, you can contribute up to the full $6,000 / $7,000 limit.

Except: If your status is married filing separately and you lived with your spouse at any time during the year, you can’t use a Roth IRA if your MAGI is over $10,000. If it’s under $10,000, you can contribute a reduced amount.

If your filing status is married filing jointly or qualifying widow(er)

If your MAGI is over $206,000, you can’t contribute to a Roth IRA. If it’s between $196,000 and $206,000, you can contribute a reduced amount. And if it’s less than $196,000, you can contribute up to the full $6,000 / $7,000 limit.

Income limits to deduct traditional IRA contributions

Anyone with an earned income (investment income doesn’t count) can contribute to a traditional IRA up to the limit. If your MAGI is greater than a certain amount, you may be partially or fully ineligible to deduct them on your tax return, though.

If you are covered by a retirement plan at work (ie 401(k), SEP IRA)

If your filing status is single or head of household

If your MAGI is over $75,000, you can’t deduct your traditional IRA contributions. If it’s between $65,000 and $75,000, you can deduct a reduced amount. And if it’s less than $65,000, you can deduct up to the full $6,000 / $7,000 contribution limit.

If your filing status is married filing jointly or qualifying widow(er)

If your MAGI is over $124,000, you can’t deduct your traditional IRA contributions. If it’s between $104,000 and $124,000, you can deduct a reduced amount. And if it’s less than $104,000, you can deduct up to the full $6,000 / $7,000 contribution limit.

If your filing status is married filing separately

If your MAGI is over $10,000, you can’t deduct your traditional IRA contributions. If it’s under $10,000, you can deduct a reduced amount.

If you aren’t covered by a retirement plan at work (ie, 401(k), SEP IRA)

If your filing status is single, head of household, or qualifying widow(er)

None. You can deduct up to the full $6,000 / $7,000 contribution limit.

If your filing status is married filing jointly or separately

If neither you nor your spouse is covered by a retirement plan at work, there’s no income limit. You can deduct up to the full $6,000 / $7,000 contribution limit.

But say your spouse is covered by a retirement plan at work:

  • If you file jointly and your MAGI is over $206,000, you can’t deduct your traditional IRA contributions. If it’s between $196,000 and $206,000, you can deduct a reduced amount. And if it’s less than $196,000, you can deduct up to the full $6,000 / $7,000 contribution limit.

  • If you file separately and your MAGI is over $10,000, you can’t deduct your traditional IRA contributions. If it’s under $10,000, you can deduct a reduced amount.

Limit on indirect IRA rollovers per year

You can’t do an indirect rollover from one IRA into another IRA more than once a year. That’s not once per calendar year, or even once per tax year — it’s once per rolling 12-month period.

This applies whether it’s traditional-to-traditional or Roth-to-Roth. However, direct rollovers don’t count, and traditional-to-Roth conversions don’t count. (Neither do rollovers from your employer retirement plan, like a 401(k) — those are different.)

Age limits on retirement accounts

There’s no age limit on IRAs. But you do have to stop contributing to your other tax-advantaged retirement accounts when you hit age 70½ — unless you’re still working, in which case you can keep contributing to a plan that’s sponsored by that employer.

And at age 72, you have to start taking required minimum distributions (RMDs) from your retirement accounts (except for Roth IRAs — no RMDs on those). If you’re still working, RMDs on non-IRA retirement accounts can also be waived, unless you own 5% or more of the company that employs you.

Those are the limits you need to know about. Now go forth and invest for that dream retirement.


Disclosures

All information sourced from https://www.irs.gov/ as of January 2020.

© 2020 Ellevest, Inc. All Rights Reserved.

Information was obtained from third party sources, which we believe to be reliable but not guaranteed for accuracy or completeness. The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

Planning to work past the age of 70½?*

Once an individual reaches age 72,* the rules for both 401(k) / 403(b) plans and IRAs require the periodic withdrawal of certain minimum amounts, known as the required minimum distribution (RMD).

If you continue to work past the age of 72,* however, your plan might not require you to make withdrawals from your 401(k) / 403(b) plan until you stop working. That means the funds in your plan can continue to grow tax-deferred until you retire. This is different from an IRA, where you’re required to start making withdrawals starting at age 72,* whether you’re working or not.

* Recently, the SECURE Act made major changes to the RMD rules. If you reach the age of 70½ in 2019, the prior rule applies, and you must take your first RMD by April 1, 2020. If you reach age 70½ in 2020 or later, you must take your first RMD by April 1 of the year after you reach 72.

Filing for bankruptcy?

If you are considering filing for bankruptcy, then funds you have held in a 401(k) or 403(b) plan are generally protected from creditors. Depending on your state of residency, funds in your IRA may not be fully protected from creditors. Please consult with your legal professional for additional guidance as to what may be applicable for your situation.

Comparing important factors when considering a 401(k) or 403(b) rollover:

Fees and Expenses
In general, both plans and IRAs typically involve (i) investment-related expenses and (ii) plan or account fees. “Investment-related expenses” may include sales loads, commissions, the expenses of any mutual funds in which assets are invested, and investment advisory fees. (Ellevest does not charge loads or commissions.) “Plan fees” typically include plan administrative fees (ex, recordkeeping, compliance, trustee fees) and fees for services such as access to customer service representatives. In some cases, employers pay for some or all of a plan’s administrative expenses. An IRA’s account fees may include, for example, administrative, account set-up, and custodial fees. (Each of the fee types listed here may or may not apply to your portfolio managed by Ellevest; please see your Client Agreement for details.)

Click here to read Ellevest’s Form ADV.

Required Minimum Distributions
Once an individual reaches age 70½, the rules for both plans and IRAs require the periodic withdrawal of certain minimum amounts, known as the required minimum distribution. If a person is still working at age 70½, however, they generally are not required to make required minimum distributions from their current employer’s plan. This may be advantageous for those who plan to work into their 70s.

Penalty-Free Withdrawals
If an employee leaves her job between age 55 and 59½, she may be able to take penalty-free withdrawals from a plan. In contrast, penalty free withdrawals generally may not be made from an IRA until age 59½. It also may be easier to borrow from a plan.

The availability of Ellevest’s investing goals depends on the membership plan selected. Ellevest Essential members can access Build Wealth only. Ellevest Plus members can access Build Wealth and Retirement On Your Terms. Ellevest Executive members can access all available investing goals.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.

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