Every year, the Internal Revenue Service announces cost-of-living adjustments that affect contribution limits for retirement plans and various tax deduction, exclusion, exemption, and threshold amounts. Here are a few of the key adjustments for 2020.
Employer Retirement Plans
- Employees who participate in 401(k), 403(b), and most 457 plans can defer up to $19,500 in compensation in 2020 (up from $19,000 in 2019); employees age 50 and older can defer up to an additional $6,500 in 2020 (up from $6,000 in 2019).
- Employees participating in a SIMPLE retirement plan can defer up to $13,500 in 2020 (up from $13,000 in 2019), and employees age 50 and older can defer up to an additional $3,000 in 2020 (the same as in 2019).
IRAs
The combined annual limit on contributions to traditional and Roth IRAs is $6,000 in 2020 (the same as in 2019), with individuals age 50 and older able to contribute an additional $1,000. For individuals who are covered by a workplace retirement plan, the deduction for contributions to a traditional IRA phases out for the following modified adjusted gross income (MAGI) ranges:
| 2019 | 2020 | |
|---|---|---|
| Single/Head of Household | $64,000 - $74,000 | $65,000 - $75,000 |
| Married Filing Jointly | $103,000 - $123,000 | $104,000 - $124,000 |
| Married Filing Separately | $0 - $10,000 | $0 - $10,000 |
Note: The 2020 phaseout range is $196,000 – $206,000 (up from $193,000 – $203,000 in 2019) when the individual making the IRA contribution is not covered by a workplace retirement plan but is filing jointly with a spouse who is covered.
The modified adjusted gross income phaseout ranges for individuals to make contributions to a Roth IRA are:
| 2019 | 2020 | |
|---|---|---|
| Single/Head of Household | $122,000 - $137,000 | $124,000 - $139,000 |
| Married Filing Jointly | $193,000 - $203,000 | $196,000 - $206,000 |
| Married Filing Separately | $0 - $10,000 | $0 - $10,000 |
Estate and Gift Tax
- The annual gift tax exclusion for 2020 is $15,000, the same as in 2019.
- The gift and estate tax basic exclusion amount for 2020 is $11,580,000, up from $11,400,000 in 2019
Standard Deduction
| 2019 | 2020 | |
|---|---|---|
| Single/Head of Household | 12,200 | 12,400 |
| Married Filing Jointly | 18,350 | 18,650 |
| Married Filing Separately | 24,400 | 24,800 |
Note: The additional standard deduction amount for the blind or aged (age 65 or older) in 2020 is $1,650 (the same as in 2019) for single/HOH or $1,300 (the same as in 2019) for all other filing statuses. Special rules apply if you can be claimed as a dependent by another taxpayer.
Alternative Minimum Tax (AMT)
| 2019 | 2020 | |
|---|---|---|
| Maximum AMT Exemption Amount | ||
| Single/Head of Household | 71,700 | 72,900 |
| Married Filing Jointly | 111,700 | 113,400 |
| Married Filing Separately | 55,850 | 56,700 |
| Exemption Phaseout Threshold | ||
| Single/Head of Household | 510,300 | 518,400 |
| Married Filing Jointly | 1,020,600 | 1,036,800 |
| Married Filing Separately | 510,300 | 518,400 |
| 26% rate on AMTI* up to this amount, 28% rate on AMTI above this amount | ||
| Married Filing Jointly | 97,400 | 98,950 |
| All Others | 194,800 | 197,900 |
*Alternative minimum taxable income
If you have questions or need assistance, contact the Experts at Henssler Financial:
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Disclosures: The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
