IRA and 401(k) Contributions in 2020
Traditional IRA contributions from pre-tax income are tax deductible. The traditional IRA has two main tax benefits – contributions are tax deductible and grow tax free. If you are covered by a qualified retirement plan at your workplace, the IRA deduction may be reduced or phased out.
- Single Taxpayers with Workplace Plan – IRA contributions for single taxpayers are phased out for individuals with incomes from $65,000 to $75,000.
- Married Couple with Workplace Plan – Married taxpayers with joint income of $104,000 - $124,000 will experience the IRA phaseout.
- Married and No Workplace Plan – If one spouse has no workplace plan and the other spouse is covered by his or her workplace plan, the phaseout on a joint return is $196,000 to $206,000.
The Roth IRA phaseout limits also increase in 2020.
- Single Individuals – The Roth phaseout for single taxpayers next year will be $124,000 to $139,000.
- Married Couples – For married couples, the Roth IRA phaseout is $196,000 to $206,000.
If your employer offers both a traditional 401(k) and a Roth 401(k) plan, you may allocate your employee contribution to one or both funds. The traditional 401(k) amounts are tax deductible, but the Roth 401(k) contributions are after-tax.
Some employers choose to match the employees' 401(k) contributions. This is a good way to encourage employee participation in the 401(k) plan. The employer match is used to fund the employee’s traditional 401(k) account. The employee may still make contributions to a Roth or traditional 401(k) account up to the $19,500 or $26,000 limit.