CWG Insight Series: Important 2020 Tax Planning Updates
It’s hard to believe that we are already heading into the 2019 tax season, and as we do, there are some important changes going into effect that might affect you in 2020. We’ll start with the simple stuff…
Contribution Limit Increases
For 2020, the maximum 401(k) contribution has been increased to $19,500, but if you’re age 50 or older, you can contribute another $6,500 as a catch-up contribution to bring your total to $26,000. For both Traditional and ROTH IRAs, the maximum is now $6,000 with an additional $1,000 catch-up for those 50 and older. Another commonly used account, the Health Savings Account (HSA), increases individual funding limits to $3,550 and family limits to $7,100. Again, if you’re 50 or older, you can take advantage of an additional $1,000 in catch-up contributions. For most of our clients, we’ve already adjusted your funding, but be sure to double check that you’re maxing these tax advantages out.
Now for a major change that will impact many retirement plans, fortunately in a positive way…
RMD Age Increase
As of January 1st, 2020, the SECURE Act was passed into law. Of the many changes, the one that affects most of our clients, increases the age at which Required Minimum Distributions (RMDs) must be taken from individual or employer sponsored retirement accounts. In past years, you were required to begin taking RMDs the year in which you turned age 70 ½. That age has now been increased to 72 to account for people working and living longer. Important to note, if you turned 70 ½ in 2019 or earlier, this change does not benefit you as you must continue your current RMD schedule. The additional years of compounding, tax-deferred growth in your retirement accounts can prove invaluable in ensuring your assets last your lifetime.
Other Important Changes in 2020
Another positive to report is they did not increase the age at which you can make Qualified Charitable Distributions (QCDs) from your IRAs. So, for those age 70 ½ and older, that’s still a great way to make your charitable contributions. You pay no tax on the distribution and you can claim the contribution on your Itemized Deductions - a double win.
For those that continue to have wage income past age 70 ½, prior to the SECURE Act, you were not permitted to make contributions to individual retirement accounts beyond that age. Moving forward, you are able to make contributions to Traditional and Spousal IRAs at any age you have wage income to report.
Each of these changes represents an opportunity in your retirement planning, and our team of advisors look forward to taking advantage in every area possible as we work towards accomplishing the goals your family entrusts us with day in and day out. If you have questions or want to review how this impacts your individual situation please don’t hesitate to reach out, even between your regularly scheduled reviews. We are ready to help you take advantage of these positive IRS changes!