New Limits New Rates
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By Bob Veres with Insider Information
’Tis the season for the U.S. Internal Revenue Service to make its annual inflation adjustments to a variety of tax rates along with contribution and gifting limits. In the coming year, individuals will be able to gift or exclude from federal estate taxes a total of $11.58 million, up from $11.4 million in 2019. The annual gift tax exclusion, or the amount you can give to heirs each year without reporting it as a gift will remain unchanged at $15,000.
The IRS also lifted the annual contribution limits to 401(k) or similar plans from $19,000 to $19,500. Plan participants age 50 or older can make $6,500 in catch-up contributions, up from 2019’s $6,000. If you plan on contributing the maximum to your employer sponsored plan in 2020, you may want to confirm with your employer that your contributions will be automatically increased come January 2020.
The amount you can contribute to an Individual Retirement Account (IRA), Traditional or Roth, remains unchanged at $6,000, with a $1,000 catchup limit for people 50 and older. If an employer allows after-tax contributions, or if you’re self-employed, the overall defined contribution plan limit was raised from $56,000 to $57,000.
The IRS also changed the tax brackets for working Americans, slightly raising the thresholds for the all tax brackets and filing types. To cap it off, they also raised the standard deduction to $12,400 for single filers and $24,800 for married people filing jointly in 2020.
All these changes are set to go into effect on January 1st of 2020, and the impact of the tax rate changes will be seen when you file your 2020 return in April of 2021. Contact a member of the Vantage Financial team if you would like to learn more about these tax changes and how they may impact you.
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