KEY POINTS
- Put up to $19,500 in your workplace 401(k) plan, plus another $6,500 if you’re 50 and over in 2020. This also lowers your taxable income.
- The standard deduction for single filers will be $12,400. It rises to $24,800 for married couples filing jointly.
- Giving away wealthy? An individual can transfer up to $11.58 million free of estate and gift taxes in 2020.
Standard Deduction
Pay attention to your standard deduction for the 2020 tax year. The IRS has bumped it to $12,400 for singles, up from $12,200 in the prior year.
The standard deduction for married joint filers will be $24,800 up from $24,400 in 2019.
Workplace Retirement Savings
Resolve to save a few extra dollars in your retirement account at work.
The IRS has raised the employee contribution limit for 401(k), 403(b) and most 457 plans to $19,500, up from $19,000 in 2019.
If you’re 50 or older, you can save an additional $6,500. That’s up from $6,000 in 2019.
The contribution limit for individual retirement accounts, whether traditional or Roth, is holding steady at $6,000, plus another $1,000 for savers 50 and over.
One caveat: The IRS limits high-income earners’ ability to make direct contributions to Roth IRAS-accounts in which you can save after-tax dollars, have the money grow tax-free and use it in retirement free of taxes.
In 2020, if you adjusted gross income exceeds $124,000 and you are single ($196,000 for married couples filing jointly), you won’t be able to make a full contribution directly to a Roth IRA.
Instead, those savers might consider using a strategy known as the “backdoor Roth”, where they make a nondeductible contribution with after-tax dollars to a traditional IRA and then covert it to a Roth.
Health Saving Opportunities
Got a high deductible plan in 2020? You most likely have access to a health savings account.
These accounts allow you to put away pretax or tax-deductible money and have it grow free of taxes. You can take a tax-free withdrawal to cover qualified health expenses.
In 2020, you can save up to $3,550 if you’re an individual with self-only health coverage. That’s up from $3,500 in 2019. Account holders with family plans can save up to $7,100 in this account (up from $7,000 in 2019).
Gift and Estate Tax Savings
Good news for people sitting on millions of dollars: The Tax Cuts and Jobs Act nearly doubled the amount that decedents can bequeath in death-or gift over their lifetime-and shield it from federal estate and gift taxes, which are 40%.
Before the tax overhaul, the gift and estate tax exemption was $5.49 million per person.
For 2020, the lifetime gift and estate tax exemption will be $11.58 million per individual, up from $11.4 million in 2019.
Finally, the annual gift exclusion-the amount you can give to any other person without it counting against your lifetime exemption-will hold steady at $15,000 for 2020.
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