Happy New Year to our extended Paracle family! As we enter the new year, we are grateful for the families we serve and the professionals in our community. We wish all of you a peaceful and profitable year ahead!
Back To The Basics
As we ponder our New Year’s resolutions and how we can help improve the financial lives of the families we serve, we keep coming back to the building blocks of solid financial planning. This article from Schwab is an important reminder to stay committed to the various pieces of your financial life that we have addressed as part of your plan.
If you’d like to revisit or learn more about any of these areas, please let your financial planning team know. Our goal this year (and every year) is to help you make confident financial decisions. We are here to help when the new year brings new opportunities or challenges.
Things To Keep In Mind For 2020
There are a few policy changes that have been implemented that may impact your plan as we head into the new year. We’ve summarized them below and will thoughtfully address these within your plan.
New 401(k) Contribution Limits
You can now contribute up to $19,500 into a 401(k) plan. If you are over 50, you can invest an additional $6,500. If you are self-employed or have a plan that offers after-tax contributions, you may be able to contribute a total of $57,000 (or $63,500 for those over 50).
Planning tip: After maxing out pre-tax contributions, make after-tax contributions, if your plan allows, and convert to a Roth account tax-free.
IRA Contribution Limits Remain Unchanged
Same as 2019, you can contribute $6,000 to an IRA ($7,000 if you are over age 50).
Planning tip: Make after-tax contributions and convert to a Roth IRA when there are little to no tax implications.
New HSA Limits
If you are covered by a Health Savings Account (HSA)-compatible health plan, you can contribute $3,550 to an individual HSA plan and $7,100 to a family plan. Those over 55 can contribute an additional $1,000.
Planning tip: Take the tax deduction for contributing to an H.S.A. but pay your medical expenses out of pocket. Invest the funds within your HSA, and let the HSA funds grow tax-free for the future.
SECURE Act Implications
Effective January 1st, 2020, the Setting Every Community Up for Retirement Enhancement (SECURE) Act introduces major changes for retirees and those preparing for retirement. Most notably, the age to take required minimum distributions (RMDs) from tax-deferred retirement plans has increased from 70½ to 72. If you turned 70½ in 2019, you will still need to start your taking your RMDs in 2020.
The SECURE Act also changes how quickly Inherited IRAs must be distributed to non-spouse beneficiaries and expands the acceptable use of 529 plan assets to include student loan repayment (up to $10,000) and apprenticeships.
Planning tip: The changes introduced by the SECURE Act will make it necessary to review situations where trusts are named as retirement account beneficiaries.
While you can still give up to $15,000 per year to another individual without filing a gift tax return, the federal lifetime estate and gift tax exemption increased to $11.58 million per individual, up from $11.4 million in 2019. The Washington State exemption amount remains at $2.193 million.
How Does Your Financial Plan Look For 2020?
If any of these changes affect you or you just want to review your plan to make sure it is still on track to meet your goals, we at Paracle Personal Financial Management would love to meet with you. Reach out to us at firstname.lastname@example.org or call 206.466.6200 to schedule a no-fee, no-obligation consultation and start the new decade off on the right financial foot!
Paracle Personal Financial Management is an independent financial planning firm founded in 2004 with an honest desire to help people optimize their finances by providing unbiased financial planning and investment advice that puts their clients first. Paracle specializes in delivering expert, comprehensive wealth management services to busy families. Their expertise integrates financial planning with investment management to ensure their clients experience confidence in every aspect of their plan so they can focus on what matters most. To learn more about Paracle, connect with them on LinkedIn.