Dec 3, 2019
In this episode of Inside the Plan with the 401(k)
Brothers, Bill Bush and Andy Bush, advisors at Horizon
Financial Group, discuss the pre-2001 Tax Act changes regarding
401(k) plans, new contribution rates for 2020, as well as the rates
for simple IRAs, IRAs, and Roth IRAs, and benefits you receive if
you turn 50 during 2020.
- 0:37 – Bill Bush and Andy Bush reflect on the first episode of
- 1:17 – What are the differences between the pre-2001 Tax Act
and now regarding 401(k) plans?
- 1:48 – Is maxing out 6% or is that a different amount?
- 2:38 – What is the new contribution rate into a 401(k)?
- 3:46 – What are you eligible for if you turn 50 in 2020?
- 4:48 – What are simple IRAs and the contribution matches?
- 7:08 – What do you need to keep in mind for IRAs?
- 10:05 – What has changed regarding Roth IRAs?
3 Key Points:
- The contributions rate into a 401(k) in 2020 has been
raised to $19,500 for any participant that has earned that
- If you turn 50 in 2020, you can contribute up to $26,000.
- With simple IRAs, for companies with no more than 100
employees, employees can put in $13,500 for 2020.
Are you considered “covered” by a Company Retirement
From the IRS website:
You’re covered by an employer retirement plan for a tax year if
your employer (or your spouse’s employer) has a:
- Defined contribution plan (profit-sharing, 401(k), stock bonus
and money purchase pension plan) and any contributions or
forfeitures were allocated to your account for the plan year ending
with or within the tax year;
- IRA-based plan (SEP, SARSEP or SIMPLE IRA plan) and you had an
amount contributed to your IRA for the plan year that ends with or
within the tax year; or
- Defined benefit plan (pension plan that pays a retirement
benefit spelled out in the plan) and you are eligible to
participate for the plan year ending with or within the tax
Box 13 on the Form W-2 you receive
from your employer should contain a check in the “Retirement plan”
box if you are covered. If you are still not certain, check with
your (or your spouse’s) employer.
The limits on the amount you can deduct don’t affect the amount
you can contribute. However, you can never deduct more than you
- “The pre-2001 tax act, that you were maxed out at 15% of your
income in a 401(k). There are still a lot of people that say, ‘How
much can I do, 15%?’ And that is not the case.” – Andy Bush.
- “How much are you maxing out? ‘Well, I am doing the 6%. Well,
what they are talking about is, they are actually maxing out the
employer match, and so those are different numbers.” – Bill
- “If you turn 50 in the year 2020, no matter when you turn 50,
you can go ahead and plan at the beginning of the year to do the
catch-up contribution, which is $6500. It used to be $6000 for
2019.” – Andy Bush.