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Annual Retirement Savings & Tax Guide: The 'Cheat Sheet'

Family

At the start of a new year, our wealth advisors are typically asked about contribution limits to everything from 401(k) plans and Individual Retirement Accounts to Medicare as well as health savings accounts. 

A favorite tool we've found to help clients of all ages and tax brackets is a comprehensive set of tables compiled by the College for Financial Planning. The college has given Index Fund Advisors authorization to republish these graphics. It has also provided us with support from Mike Harris, a professor and chairman of the college's retirement studies department. 

Below is a breakdown with some key changes from 2019's list as highlighted by Harris. It can act as a sort of 'cheat sheet' for you to discuss different financial and investment-related matters with one of IFA's advisors in the new year. John Dahlin, who heads up IFA Taxes, might also be a good resource in reference to reviewing changes in tax and savings contribution rates. He's an experienced certified public accountant (CPA) who works with both business owners and individual taxpayers on issues ranging from tax preparation to bookkeeping and quarterly payroll planning. 

Retirement Plans

This year, elective deferrals to workplace retirement savings programs such as 401(k) and 403(b) plans are going up by $500 to $19,500 a person for those under the age of 50. For those over age 50, you can contribute an additional $500 to $6,500, making total contributions for 2020 rise by as much as $1,000 more than in 2019 for those 50 and older. 

Also of note: IRA and Roth IRA contribution limits remain the same this year ($6,000 for individuals under the age of 50 with an added catch-up contribution of $1,000 allowed for those 50 or older). Meanwhile, SIMPLE plan contributions went up by $500 to $13,500 in 2020 with the catch-up (50 or older) remaining at $3,000 per person. 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Social Security

In 2020, the taxable wage base went up to $137,700 from $132, 900 in the previous year. Another notable change was an increase to $3,011 in the maximum monthly benefit for a worker retiring at full retirement age (FRA). Last year, that monthly limit topped out at $2,861. While Social Security's annual cost-of-living adjustment increased by 1.6%, that was a drop from 2019's 2.8%. (Note: FICA refers to the Federal Insurance Contributions Act and SECA is the Self Employed Contributions Act. Also, FRA stands for "Full Retirement Age.") 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Estate & Gift Tax

The annual gift tax exclusion remains at $15,000 and the maximum estate tax rate stayed at 40%. But the estate and gift tax exclusion rose to $11.58 million from $11.40 million. Also, the applicable credit amount increased a bit to $4,577,800 from $4,505,800. 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Medicare

In general, Part A monthly premiums jumped to $458 (from $437) and Part B monthly premium rose to $144.60 (from $133.50). Skilled nursing care costs went up slightly in some cases, as did the Part B deductible ($198 vs. $185 in 2019). In terms of Part D, the deductible went up to $435 (from $415) and the out-of-pocket threshold increased to $6,350 in 2020 as opposed to the previous year's $5,100. 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Health Savings Account

The minimum deducticle amount for a single saver has gone up by $50 to $1,400 in 2020. For a family, it's now at $2,800, up $100 from 2019. The maximum out of pocket amount has also risen some ($6,900 for a single person and $13,800 for a family) in 2020. The HSA statutory contribution maximum is also higher for a single saver ($3,550 vs. $3,500) and a family ($7,100 vs. $7,000). The catch-up contribution, however, for those age 55 or older stays at $1,000 in 2020. 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Education

The phaseout levels for tax savings on a Coverdell Education Savings Account, both for single taxpayers as well as those who are married and filing jointly remain the same in 2020. Those are: $95,000-$110,000 for single and $190,000-$220,000 for people who are married and filing jointly. As shown in the table below, those phaseout ranges remain the same in 2020 for the other types of educational loans reviewed. Two types have seen slight increases, though: EE bonds for eduction and the Lifetime Learning Credit.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Income Taxes & Schedules


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Other Items of Interest


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Footnotes:

  1. The Part A premium of $458 per month applies to persons who have fewer than 30 quarters of coverage under Social Security. For those having 30-39 quarters, the Part A Premium is $252 per month.
  2. Beneficiaries not subject to the "hold harmless" provision includes persons not receiving Social Security, those who enroll in Part B for the first time in 2020, dual eligible beneficiaries who have their premiums paid by Medicaid, and beneficiaries who pay an additional income-related premium. See Premium rates (Figure 1)
  3. The FICA tax rate is comprised of two separate payroll taxes: Employer portion—6.20% for Old-Age, Survivors, and Disability Insurance (OASDI), and 1.45% for Hospital Insurance (HI); Employee portion—6.20% for Old-Age, Survivors, and Disability Insurance (OASDI), and 1.45% for Hospital Insurance (HI). For self-employeds, the SECA is 12.40% for OASDI and 2.90% for HI.
  4. A deceased spouse's unused credit amount is portable to a surviving spouse.

This is intended to be informational in nature and should not be construed as an offer, solicitation, recommendation, endorsement of any security, or tax advice. As a division of Index Fund Advisors, Inc., IFA Taxes provides a wide array of tax planning, accounting and tax return preparation services for individuals and businesses across the United States. IFA Taxes does not provide auditing or attestation services and therefore is not a licensed CPA firm. IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. Federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter herein.

For more information about Index Funds Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.