Cost-of-Living Adjustments on Qualified Retirement Plans and Social Security Taxable Income, As Well as Increases in Health Savings Account Contributions

Jackie Himes, CPA
Focused on You. Dedicated to Your Success.
December 9, 2019

The IRS announced the cost-of-living increases for qualified retirement plans in Notice 2019-59 . Section 415 of the Internal Revenue Code (the Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. The following cost-of-living adjustments are effective January 1, 2020:
  • The limitation on the annual benefit under a defined benefit plan is increased from $225,000 to $230,000. 
  • For a participant who separated from service before January 1, 2020, the participant’s limitation under a defined benefit plan is computed by multiplying the participant’s compensation limitation, as adjusted through 2019, by 1.0176. 
  • The limitation for defined contribution plans is increased in 2020 from $56,000 to $57,000. 
  • The limitation on the exclusion for elective deferrals is increased from $19,000 to $19,500. 
  • The annual compensation limit is increased from $280,000 to $285,000. 
  • The dollar limitation concerning the definition of “key employee” in a top-heavy plan is increased from $180,000 to $185,000. 
  • The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,130,000 to $1,150,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $225,000 to $230,000. 
  • The limitation used in the definition of “highly compensated employee” is increased from $125,000 to $130,000. 
  • The dollar limitation for catch-up contributions to an applicable employer plan other than a plan described for individuals aged 50 or over is increased from $6,000 to $6,500. 
  • The dollar limitation for catch-up contributions to an applicable employer plan for individuals aged 50 or over remains unchanged at $3,000. 
  • The annual compensation limitation for eligible participants in certain governmental plans that allow cost-of-living adjustments to the compensation limitation is increased from $415,000 to $425,000. 
  • The compensation amount regarding simplified employee pensions (SEPs) remains unchanged at $600. 
  • The limitation for SIMPLE retirement accounts is increased from $13,000 to $13,500. 
  • The limitation on deferred compensation plans of state and local governments and tax-exempt organizations is increased from $19,000 to $19,500. 
  • The limitation the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000. 
  • The compensation amount on the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $110,000 to $115,000. The compensation amount is increased from $225,000 to $230,000. 
  • The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract is increased from $130,000 to $135,000.
  • The threshold used to determine whether a multiemployer plan is a systemically important plan is increased from $1,097,000,000 to $1,135,000,000. 

SAVER’S Credit
The income limit for the SAVER’S Credit (also known as the Retirement Savings Contributions Credit) for low-to moderate-income workers is $65,000 (up from $64,000) for married couples filing jointly, $48,750 (up from $48,000) for heads of households, and $32,500 (up from $32,000) all other tax payers. 

Social Security Taxable Wage Base
The Social Security Administration announced that the Social Security taxable wage base for 2020 will increase from $132,900 in 2019 to $137,700 in 2020.

Health Savings Accounts (HSA)
The IRS also announced for calendar year 2020, the annual limitation on deductions for HSA contributions for an individual with self-only coverage under a high deductible health plan is $3,550 (up from $3,500 in 2019), and $7,100 (up from $7,000 in 2019) for an individual with family coverage. 

A “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage (up from $1,350 and $2,700 in 2019). Annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) cannot exceed $6,900 for self-only coverage or $13,800 for family coverage (up from $6,750 and $13,500 in 2019).

Feel free to call any member of our team to discuss your situation at 610-828-1900 (PA) or 732-341-3893 (NJ). You can contact Jackie Himes, CPA, CPA, director – tax services at Jacquelyn.Himes@MCC-CPAs.com or me at Marty.McCarthy@MCC-CPAs.com . We are always happy to help. We are here to help. 

Martin C. McCarthy, CPA, CCIFP
Managing Partner 
McCarthy & Company, PC 

Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).