2020 Brings Several Financial Changes

January 16th, 2020 by Jim Allen

The start of the New Year typically brings changes to several important financial thresholds. For example, your Social Security benefits have been increased as have the amount you can put away in your 401(k). Highlighted below are some of the important changes for 2020:

IRA Contributions: The amount you can contribute to your IRA in 2020 remains unchanged at $6,000. If you are age 50 or older, you can contribute an additional $1,000 as a “catch-up”, bringing the total amount you can contribute to $7,000. This maximum applies to both traditional IRAs and Roth IRAs or to any combination of both.

401(k) Salary Deferrals: The amount of your salary you can have deferred into your 401(k) did increase from $19,000 in 2019 to $19,500 for 2020. Plus, if you are over age 50 you can also defer another $6,500 as a “catch up, bringing the total amount of salary deferral to $26,000 for 2020.

Roth IRA Participation Limits: With Roth IRAs, your ability to contribute is phased out (eliminated) if you exceed certain income limits. For single taxpayers, your ability to contribute to a Roth IRA is fully eliminated at $139,000 of adjusted gross income for 2020. For married taxpayers, $206,000 of adjusted income is the threshold for full elimination of any contributions. While the ability to make contributions to a Roth IRA is phased out at these income limits, you can convert traditional IRA amounts to a Roth IRA regardless of your income level.

Social Security Cost of Living Adjustment: If you are receiving Social Security benefits, your monthly check will be increased by 1.6% for 2020.

Medicare Part B Premiums: If you are on Medicare, your basic Part B premiums for doctor coverage will be increased by $9.10 to $144.60 monthly. However, if you are above certain income limits, you are subject to additional premium charges under the Income-Related Monthly Adjustment Amount or IRMMA. Depending on your income level, your Part B premiums under IRMMA can be as high as $491.60 per month.

Social Security Income Threshold: If you turn on Social Security benefits prior to your full retirement age (66-67 depending upon the year you are born) and you work, some of your benefits will be withheld if you exceed the income threshold. For 2020, the amount you can earn by working while on Social Security before full retirement is increased to $18,240. Once your wages exceed that number, you will lose $1 for every $2 earned above the threshold.

Estate Tax Exemption: Under the tax act that was passed at the end of 2017, each US Citizen has an exemption from estate taxes of $11,500,000 each. So a married couple doesn’t need to worry about estate taxes unless they are worth more than $23,000,000. That number is indexed for inflation and is increased to $11,580,000 each for 2020. Under the current law, 99.99% of the population doesn’t need to worry about estate taxes. In addition, California does not have an estate or inheritance tax to worry about. However, there are several other states that impose an estate or inheritance tax at much lower levels than the federal exemption.

Secure Act in Effect for 2020: As we discussed in our December 30th article, the SECURE act is now in effect and will have ramifications for many people when it comes to their retirement planning. Probably the most important change is the elimination of the “Stretch IRA” for beneficiaries of inherited IRAs. This change will likely impact many estate and tax plans and a review of your plan is of critical importance.

While many of these changes will have only minor impact on your financial situation, they mean that a review and update of your plan is necessary. We will be scheduling plan reviews with our clients over the next few weeks. If you would like to have your situation reviewed by our team of highly experienced and credentialed professionals, please contact us to schedule a complementary consultation.

Sign Up For Our Newsletter

* indicates required