The IRS has announced most tax-advantaged contribution limits for 2020. I was waiting to release this post until they announced the Flexible Spending Account (FSA) contribution limits. For some reason, that one was the last to be released.
Being that I’ve started saving for retirement late, I max out all the tax-advantaged accounts I can get my hands on now. That being said, I have an end of the year calendar reminder to notify the accountant who handles payroll at my job to up my contributions accordingly. Each year as the IRS raises the allowable contribution limits, I raise my pre-tax contributions.
This post is to inform you of all tax-advantaged contribution limits for 2020. If I’ve missed any, please feel free to let me know. Additionally, if you are not able to max out any of these accounts, don’t let that intimidate you. Just begin!
Healthcare Related Contribution Limits
We’ll start with the most recently released one.
The dependent care FSA limits are not indexed for inflation and so remain at:
If you have health insurance through a job, you can utilize a Flexible Spending Account (FSA). An FSA is one that you can put pre-tax money into to cover your out-of-pocket healthcare expenses. FSAs are more of a use it or lose it type of account so it’s best to make an educated guess of how much healthcare you will consume.
On October 31, 2013, the IRS announced that they would allow employers to offer either a carryover or a grace period for FSAs effective in the 2014 plan year.
Check with your employer if you have an FSA as they may offer one of the two options:
- Two and a half months grace period in the new year to use up the previous year’s dollars
- $500 carryover to use in the new year
Health Savings Accounts (HSAs)
Now if you are on an HSA qualified plan you can contribute to Health Savings Account (HSA). I personally find this to be the better option (if you qualify) for a multiple of reasons:
- The contribution limits are higher
- You never lose the money
- Lastly, you can invest HSA funds in mutual funds
Here are the contribution limits for HSAs in 2020 in comparison to the last few years.
I use my HSA as an investment vehicle because I can cash flow my health care expenses. Being able to cash flow out-of-pocket healthcare expenses is the first key to being able to invest your HSA dollars. I recommend knowing your full deductible and maximum out of pocket exposure on your particular high deductible health plan. The good news about investing HSA dollars is that you can always access them for qualified expenses. However, since we don’t have a crystal ball for the market, don’t play around with your healthcare. I think it’s wise to be able to cash flow your full maximum out-of-pocket exposure before investing your HSA dollars.
Additionally, many banks allow you to invest some of the HSA dollars and leave some tied to your debit card. This can be a good compromise!
401 (k), 403 (b), Most 457 plans & The Federal Government’s Thrift Savings Plan
Simple Individual Retirement Account (IRA)
This is what I have access to with my employer and I’m actually excited about turning 50 so I can put in more. 🙂
There is no change in IRA Contribution Limits for 2020.
Roth IRAs are a little bit more complicated as there income limits:
It’s an exciting time of year as we approach the holidays, wrap up our goals for the current year, and make new plans for the new year. Take the time to make your financial plans for next year and remember to set it and then you can forget it until next year at this time again.