2019 Tax Updates & 2020 Retirement Contribution Limits
Details of the July 15, 2020 DeadlineEven though the extension is because of the coronavirus, you do not need to be sick or quarantined in order to receive the extension. In addition, you do not need to file a special form to use the July 15th deadline. As long as you file a return or an automatic extension request and pay your taxes by July 15th, no interest or penalties will be due. A few items that don’t qualify for the IRS’s three-month delay are: estate and gift taxes, excise taxes, information returns such as 1099 forms, and payroll taxes.
IRA Contribution LimitsFor 2020 IRA contributions, you are able to contribute a max amount of $6,000 if under the age of 50, and $7,000 if you are age 50 or older. However, you can only contribute money to your IRA if it is earned income. What can qualify your money as “earned income” is either working for an employer, or running your own business. It is important to note that you can only contribute up to your earned income year. For example, if you earned $4,000, that’s the most you can contribute to your IRA. Spousal IRAs are another route you can take as well, meaning if you don’t have earned income but your spouse does, you can open a Spousal IRA. This type of account allows for someone with earned income to contribute to the IRA on behalf of their spouse who doesn’t work or make pay. However, to be eligible for this account, you and your spouse must be married and file joint tax returns each year.
401(k) Contribution LimitsThe eligibility to contribute to a 401(k) is not determined by income limits. For this year, contribution limit is $19,500 for those aged under 50, and $26,000 for those over the age of 50. Both of these are an increase from 2019 limits, which were $19,000 and $25,000. Keep in mind that although your 401(k) contributions reduce your taxes, you don’t claim a deduction amount when you file your taxes; those contributions come directly out of your paycheck and made with pre-tax dollars. This is helpful though because it lowers your taxable income for the year, and leads to saving cash at tax season. The best perk of an employer 401(k) plan is the employer match. The combined 401(k) contribution limits between you and your employer matched-funds are $56,000 if under 50, $62,000 if over age 50. So, if your employer offers a match, be sure you are contributing enough to take advantage of the full amount.
Roth IRA Contribution LimitsA Roth IRA is a special retirement account where you pay taxes on money going into your account now, and then all future withdrawals made are tax-free. Like the Traditional IRA, the maximum annual contribution an individual under 50 can make is $6,000, and over 50 can contribute up to $7,000. However, this IRA has more restraints on what you can contribute because of income and filing status limits; If your income exceeds a certain amount, you may not be able to contribute a Roth IRA. If you are unsure on whether to open a Roth over a traditional IRA, consider the idea on whether you are more interested in tax-free income when you reach retirement rather than taking a tax deduction now when you contribute.
Starting on January 1, 2020 through April 15, 2021, you are able to contribute to your 2020 IRA or Roth IRA. If you would like to further discuss these limitations or have further questions in preparing for the new contribution year, give us a call or set up an appointment online through our website.
ABOUT SGROI FINANCIALSgroi Financial is a full service, independent financial planning firm proudly serving the Western New York area since 1971. We offer services that will help you achieve your financial goals including retirement planning, investment management, estate planning, college planning and insurance. We help individuals, families, retirees, working adults, young adults and business owners.
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