(And how they may impact your retirement)
Several changes occurred in tax law in 2020 that may impact your retirement. We’ve put together a list of some of those laws to help keep you informed. It’s important to know how changes in tax law could affect your retirement. Of course, you should always consult a qualified tax professional regarding any tax laws or questions.
How Tax Laws For 2020 Impact How Much You Can Put Into Your Retirement
The amount of money you can put into your 401(K), 403(B), or 457 plan went up in 2020 in two different ways. The total amount you can put in went up by $500, to a total of 19,500. Also, if you were born before 1971, your catch-up amount was raised to 6,500. Obviously, this is also a 500$ increase over 2019.
Similarly, IRAs saw some changes, too. For example, if you have a simple IRA, you can now also add to your savings in that account by $500 (a total of 13,500.) People over the age of 50 are also able to contribute up to $3,000 more. True, the amount of money you can put into a traditional IRA or Rith RIA stayed the same. But the amount of money you’re able to make and still take a deduction went up. Married couples can earn about $3,000 more this tax year, for instance, and they may still be able to deduct the money they put into their IRA.
What Has Changed in Payouts & Distributions?
The tax laws for 2020 have also changed a few things about taking money out of your retirement. For example, 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. Your slightly older peers, meanwhile, still must take their RMD. Essentially, this allows some people to keep their money in their account without fees or fines.
Now, if you’re under the age of 59 1/2, you must pay a penalty on an early withdrawal. But tax laws for 2020 waived this 10% fee, as long as the payouts met two criteria: First, that the money was taken out due to the impact of coronavirus on your finances. Second, that you didn’t take out more than $100,000. In addition, you may have elected to take monthly income payments from your retirement account over a period of 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 taking a loan against your retirement. However, if you did this in 2020, here’s what you need to know. Firstly, the amount you could’ve borrowed up to a maximum of $100,000 because of the CARES Act. this increase ended, though, on September 23, 2020. Secondly, if you owed money on a retirement loan in 2020, your payments might’ve been delayed for a 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 now may need to clean out the account within 10 years of the death of its owner or participant. There are exceptions to this, though, including payouts for surviving spouses, the disabled, and others. And if the account owner died before 2020, you might not be affected by this change at all.
Income Tax Brackets
Tax brackets can definitely 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. Of course, be sure to consult a qualified tax advisor for any specifics.
Contact Us Today
At Tower Bridge Financial, we focus on helping retirees protect their hard-earned money during retirement. If you’d like to learn more about ways to protect your principal while also having a reasonable rate of return, please contact us.