Now that we are in a new year, are there any changes I should account for when planning out 2020?
The beginning of the year is always a good time to take stock of what you accomplished in the previous year and start planning for how you will accomplish your goals in the new one. The IRS released some important updates you should be aware of so you can plan accordingly.
Tax brackets. Each year, the IRS adjusts the tax brackets to account for inflation. I recommend checking the new brackets to verify your federal income tax rate for the new year.
Standard deduction. The standard deduction increased to $12,400 from $12,200 for single filers. For married couples, the standard deduction increased from $24,400 to $24,800.
Also by Jeff Witz, CFP: Self-employed? Here’s how you can save for retirement
Workplace retirement plan contributions. Contribution limits increased for 401(k)s, 403(b)s, and most 457 plans to $19,500, up from $19,000 in 2019. If you are over age 50, the catch-up contribution amount increased to $6,500, up from $6,000. The maximum combined employer and employee contribution amount increased to $57,000 from $56,000 for persons under age 50. For those over 50, the maximum increased to $63,500 from $62,000. The employee compensation limit for calculating contributions increased to $285,000 from $280,000.
Traditional and Roth IRAs. There was no change to the annual contribution limits for traditional and Roth IRAs. That amount remains $6,000 if under age 50 and $7,000 if over age 50.
Savings Incentive Match Plan for Employees (SIMPLE) and Simplified Employee Pension IRAs. The contribution limit for SIMPLE IRAs increased to $13,500 from $13,000. The SIMPLE catch-up contribution limit for those over age 50 remains at $3,000. The SEP maximum compensation limit increased to $285,000 from $280,000.
Health savings accounts (HSAs). If you are in a high-deductible health plan, you may have access to an HSA. If you are the only person covered by your health plan, the HSA contribution limit was increased to $3,550 from $3,500. If family members are also on the plan, the contribution limit was increased to $7,100 from $7,000.
Flexible spending accounts (FSAs). The health care FSA contribution limit was increased to $2,750 from $2,700.
Lifetime gift and estate tax exemption. This exemption amount was increased to $11.58 million per individual, up from $11.40 million. For married couples, the exemption amount is $23.16 million.