2020 retirement plans: Key IRS numbers Payroll must know Find out how much workers can contribute As employees start updating their benefits for next year, take note: The IRS has released the 2020 contribution limits for 401(k)s and other qualified retirement plans, along with additional key numbers. Here’s a look at the most important info Payroll will need to know. Maximum plan contributions For 2020, the maximum amount workers will be able to contribute to a 401(k) plan is $19,500 (up from $19,000 in 2019). This limit also apples to 03(b) plans and most 457 plans. In all, the total contribution limit to retirement plans from both employer and employee sources will be $57,000 (up from $56,000 in 2019). The new limit for employees age 40 and over who are making catch-up contributions to these plans is $6,500 (up from $6,000 in 2019). Catch-up contributions don’t count as part of the total contribution limit. To calculate these limits, the maximum amount of employee compensation that can be considered will be $285,000 in 2020, which is $5,000 more than in 2019. Remember, if employees make any contributions to your retirement plan that exceed these limits, they’ll have to be counted as taxable income for the year the money is withdrawn from the plan. If it’s not withdrawn by April 14 of the following year, additional taxes may apply. Compensation limits Along with updated contribution limits, the IRS also announced several new salary limitations used with nondiscrimination testing for retirement plans. The updated compensation limit used to determine who’s considered a “highly compensated employee” will be $130,000, an increase from $125,000. Note: Although this limit refers to income earned in 2020, it’ll apply the definition of a highly compensated employee for the 2021 plan year. In addition, the new salary limit that applies to the definition of a “key employee” in a top-heavy retirement plan will increase to $185,000 in 2020, up $5,000 from 2019. More info: irr.gov/pub/irs-drop/n-1959.pdf