The numbers some of you have been waiting for: the 2020 retirement contribution limits

It’s that time of year! The IRS has announced its annual inflation adjustments for 2020. Remember that the below applies to money you earn starting January 1, 2020, so don’t make any changes just yet. Some important highlights:

Standard deduction

• increases to $12,400 if your filing status is single or married-filing-separately

• increases to $18,650 if your filing status is head of household

• increases to $24,800 if your filing status is married-filing-jointly

Review this post for an explainer on the filing statuses and which to use.

Tax brackets

• the number of brackets remains the same at 7

• the limits of each bracket increases by about 1-2%: see here for specifics on the brackets

401k/403b contribution limits

• the employee contribution limits increases to $19,500

• the catchup contribution limit (which is available to you beginning the year you turn 50) increases to $6,500

• the overall plan limit (employee + employer + catchup) increases to $57,000. This is the number for those contributing to SEP or Solo 401k plans to keep in mind as well

Estate and gift tax exemption

• the estate tax exemption increases to $11.58 million per individual - a married couple can leave an estate of $23.16 million free of federal estate taxes. States might have a different idea, of course.

Social Security

• cost-of-living adjustment (COLA): 1.6%

• the earnings limit increases to $137,700. This is the maximum amount of annual income that is subject to the Social Security tax. If you will earn more than this next year, remember to factor in the increased take-home once you reach that limit, and be proactive about giving those dollars a job. Also keep in mind that the limit is applied to each person individually: marital status, deductions, and/or your spouse’s income don’t matter.

What’s not changing

• the IRA and Roth contribution limit remains $6,000, and the catchup contribution remains $1,000. However, the income limits that relate to these contributions will change, so familiarize yourself with those limits, or ask your advisor, before making a contribution next year

• the annual gift tax exclusion remains $15,000. This means you can give $15,000 to as many people each year as you like without it having an impact on your taxes. If you are married, you and your spouse can each give $15,000. And remember, a gift is never taxable to the recipient.

• medical, state and local tax, and charitable contribution deductions remain the same

• rules for the mortgage interest deduction stay the same - basically the interest on the first $750,000 of new debt ($375,000 for married filing separately taxpayers) you take on is deductible, anything above that is not. This rule is more complicated than it seems on the surface, so ask for guidance specific to your situation