No “Diet” COLAs for 2020: Most IRS Benefit and Contribution Limits Increased for Cost of Living

Employers, it is time to update your qualified retirement plan administration systems for 2020. On November 6, 2019, the Internal Revenue Service (IRS) announced the 2020 cost-of-living adjustments, also known as COLAs, affecting tax-qualified retirement plans.

This was not a skinny list of adjustments—the 2020 COLAs affect most of the general retirement plan limitations. Effective January 1, 2020, the Internal Revenue Code’s (IRC) limits on annual contributions, annual compensation that can be taken into account, pretax or Roth elective deferrals, and even most catch-up contributions (for participants over age 50) will be increased based on the cost-of-living index. Some of the key limits for tax-qualified retirement plans are included in the following table:

Code or Regulation Section	2020	2019
Annual Compensation: IRC §401(a)(17) / 404(l)	$285,000	$280,000
Elective Deferrals: IRC §402(g)(1)	$19,500	$19,000
Catch-Up Contributions: IRC §414(v)(2)(B)(i)	$6,500	$6,000
Defined Benefit Plan Limits: IRC §415(b)(1)(A)	$230,000	$225,000
Defined Contribution Plan Limits: IRC §415(c)(1)(A)	$57,000	$56,000
Deferral Limit: IRC §457(e)(15)	$19,500	$19,000
Highly Compensated Employee Threshold: IRC §414(q)(1)(B)	$130,000	$125,000
Qualified Longevity Annuity Contract Premium Limit: IRC §401(a)(9)	$135,000	$130,000
Employee Stock Ownership Plan (ESOP) Limits: IRC §409(o)(1)(C)(ii)	$1,150,000 $230,000	$1,130,000 $225,000
Dollar Limitation of Key Employee in a Top-Heavy Plan: IRC §416(i)(1)(A)(i)	$185,000	$180,000
SIMPLE Maximum Contributions: IRC §408(p)(2)(E)	$13,500	$13,000
SIMPLE Catch-Up Contributions Limits: IRC §414(v)(2)(B)(ii)	$3,000	$3,000
Simplified Employee Pension (SEP) Minimum Compensation: IRC §408(k)(2)(C)	$600	$600
SEP Maximum Compensation: IRC §408(k)(3)(C)	$285,000	$280,000
“Control Employee” Compensation for Fringe Benefit Valuation: Income Tax Regulations §1.61-21(f)(5)(i)	$115,000	$110,000
“Control Employee” Compensation: Income Tax Regulations §1.61-21(f)(5)(iii)	$230,000	$225,000
Social Security Taxable Wage Base	$137,700	$132,900

Catherine R. Reese is a shareholder in the Indianapolis office of Ogletree Deakins.

Tracy L. Mounts is a paralegal in the Indianapolis office of Ogletree Deakins.