Planning for 2020 with Updated Amounts and Adjustments from the IRS

We cannot stress enough the value that tax deferred savings brings to your retirement planning. It is one of the more powerful tools at your disposal.

To help prepare those of you who are still working, a summary of the 2020 Annual Benefit Plan Amounts, showing adjustments to dollar limitations on benefits from and contributions to qualified retirement plans, can be found at the end of this communication.

Additional information about tax inflation adjustments for tax year 2020 can be found HERE.

Consider contributing to your 2020 employer sponsored retirement plan the maximum amount allowed, or to the extent that you are able to do so. If you are 50 or older, consider contributing the catch-up amount as well. If you are not already maximizing your tax-deductible contribution for 2019 and intend to make a contribution in December, please be sure to advise your plan administrator of your intentions so you can meet your contribution objective by year-end.

Sometimes people confuse maximizing their contributions to mean maximizing their employer match. For instance, let’s say they match 100 percent of your contributions up to 3 percent of your income. And let’s say you make $100,000 a year and you contribute 3 percent, or $3,000. Your employer would match that at 100 percent, putting another $3,000 in your retirement account. So, in one year, contributions to your 401(k) savings would be $6,000.

As you can see, the $3,000 you would have contributed in this scenario, is considerably less than the $19,500 you’re allowed to contribute to a 401(k) based on the 2020 limits. If you are 50 or older this amount is $26,000. We want to further clarify that your employer’s contributions do NOT count towards this limit. The combined employee and employer contribution limit for 2019 is $57,000. Which means, subject to the conditions of each employer’s plan, they could potentially contribute up to an additional $37,500 on your behalf. Remember, these contributions are tax-deferred; thus, the reason for the limit.

If you need assistance with tax planning or filing taxes, we would be happy to connect you with one of our CPA resources.

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Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.

The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.  

Published for the blog on December 16, 2019 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.