(And how they may impact your retirement)
Several changes occurred in the tax laws for 2020 that may impact your retirement. To help keep you informed, we’ve put together a list of some of them here. Of course, you should always consult a qualified tax professional regarding any tax laws or questions. Please note, Don Retallick and Retallick Financial Group are not qualified, tax advisors. However, it is important to know how changes in tax laws may affect your retirement.
How Tax Laws for 2020 Impact How Much You Can Put Into Your Retirement
The amount you can put into your 401(k), 403(b), and 457 plan went up in 2020 in two ways. First, the total amount you can put in went up to $500, to a total of $19,500. Second, if you were born before 1971, your catch-up amount was raised to $6,500. Obviously, this is also a $500 increase over 2019.
Similarly, IRA’s saw some changes, too. If you have a SIMPLE IRA, for example, 2020 meant you also could add to your savings in that account by $500 (a total of $13,500). In addition, people over age 50 are able to contribute up to $3,000 more. True, the limits on how much money you can put into traditional IRA’s and Roth IRA’s stayed the same. However, the amount of money you are able to make and still take a deduction went up. For example, married couples can earn about $3,000 more this tax year than the year before and may still be able to deduct the money they put into their IRA.
Payouts & Distributions: What Changed in 2020?
Meanwhile, the tax laws for 2020 also changed a few things about taking money out of your retirement. For instance, if you turned 70 1/2 after 2019, you can hold off on taking a required minimum distribution (RMD) from your account until age 72. In contrast, your slightly older peers still must take their RMD. Basically, this allows some people to keep their money in their accounts without fees or fines.
On the other hand, if you are under age 59 1/2, you must pay a penalty on an early withdrawal. However, tax laws for 2020 waived this 10% fee as long as the payouts met two criteria: First, that that money was taken out due to the impact of coronavirus on your finances. And, second, that you did not take out more than $100,000. In addition, you may have elected to take monthly income payments from your retirement account over three years. In this case, you have three years to pay it back to avoid penalties.
Borrowing from Retirement Accounts in 2020
Most people wouldn’t recommend you take a loan against your retirement. However, if you did this in 2020, here is what you need to know. Firstly, the amount you could have borrowed went up to a maximum of $100,000 via the CARES Act. However, this increase ended on September 23, 2020. Secondly, if you owed money on a retirement loan in 2020, your payments may have been delayed for one year.
Inheritance & Gift Tax Laws for 2020
The SECURE Act changed some of the rules for taking out money from an inherited IRA or workplace retirement account. For example, you may now need to clean out the account within 10 years of the death of its owner or participant. There are some exceptions, though, including payouts for surviving spouses, the disabled, and others. Importantly, if the account owner died before 2020, you may not be affected by this change.
Income Tax Brackets
Certainly, tax bracket can have an impact on retirement income. In tax laws for 2020, some of the ranges of income changed compared to their tax rate. For the most part, the changes widened the income ranges in each category. As always, be sure to consult a qualified tax advisor for specifics.
At Retallick Financial Group, we focus on helping retirees to protect their hard-earned money in retirement. If you would like to learn more about ways you can have a reasonable rate of return while keeping your principal, contact us.