New York Estate Planning & Elder Law Blog
If you’ve had a 401(k) for some time, you’re aware that each year many factors influence the value of contributions. 2020 is shaping up to be a great year to make contributions to a 401(k) plan. The Internal Revenue Service recently announced its 2020 limits for plan contributions.
Not only must employers make sure to make administrative changes to these retirements plan, but account holders should also similarly be prepared to do what it takes to make the most of their contributions.
What the Announcement Involves
The Internal Revenue Service recently announced that according to IRS Notice 2019-59, an individual might be eligible to contribute a maximum of $19,5000 to their 401(k) plan in 2020. This marks an increase of $500 over the plan’s 2019 limit.
If you are or will turn 50 before 2020 ends, however, you might be eligible to contribute an additional $6,500 as a “catch up” contribution or a total of $26,000. If you are employed as a government or tax-exempt worker and participate in a 403(b) plan, these same limitations apply.
Other Changes of which Workers Should Be Aware
These maximum contributions are not the only limitation about which workers should be aware of. Several other annual limits were recently increased, which include:
- The maximum annual that is taken into account has increased from $280,000 to $285,000
- The “highly compensated employee” income threshold has been raised from $125,000 to $130,000
As a result of these changes and several others, workers should check their plan contribution elections before the end of 2019 to make sure that they take full advantage of these increased contribution limits in the following year.
Make the Most of Employer Matching
In addition to remaining aware of the increased contribution limits, another strategy that you should make sure to use during 2020 to make the most of your 401(k) is employer matching.
A large number of employers who sponsor 401(k) plans also match employee contributions to varying degrees. By understanding how your employer’s matching system workers, you can make the most of what you contribute to your retirement plan. These matching programs are often based on a percentage of a person’s salary.
The only thing to be cautious about when it comes to matching is that employers often have vesting schedules. In these situations, the amount that an employer provides might not be yours immediately. Instead, it will become yours after some time. If you decide to leave your employer before the amount is fully vested, you are at risk of giving up some assets that could have been yours.
Contact an Experienced Estate Planning Lawyer
While 401(k)s involve a variety of complex laws, if navigated successfully these retirements accounts can play an invaluable role in your estate plan. To learn more about how to make the most of your contributions, it can help to speak with a knowledgeable estate planning attorney.
Contact Ettinger Estate Planning today to schedule a free case evaluation.