Retirement Accounts, IRA's, Roth's and 401(k)'s

IRA limits

The contribution limits for both traditional and Roth IRA's for 2019 and 2020 are $6,000.  Taxpayers who are age 50 and above are permitted to contribute an additional $1,000 to $7,000.  There is no age limit on IRA contributions based on the new tax law changes

The dollar limit to qualify for deductible contributions to an IRA for a taxpayer who is not an active participant but whose spouse is an active participant is $196,000 for 2020. 

 

Eligibility

Many taxpayers may not be eligible for a deduction to a traditional IRA.  A deductible contribution is dependent on whether you are covered by another retirement plan.  For 2019 if your income is above $64,000 single or $103,000  married filing joint your contribution begins to phase out if you are covered by another plan.  If you and your spouse are not covered by a retirement plan you may contribute to and deduct contributions to an IRA without income limitations.

 

401(k) limits

The limits for 401(k) contributions and Roth 401(k) contributions for 2019 are $19,000 with an additional $6,000 allowed as a catch up contribution for employees over the age of 50. The limits increase to $19,500 in 2020 and the catch up contribution limit increases to $6,500 for a total of $26,000 that can be contributed by an individual over age 50.

Distributions will be required for traditional 401(k) plans once an individual reaches age 70 1/2 (changed to age 72 for individuals starting in 2020).

 

Minimum Distribution Rules - updated for 2020

Distributions are required by retirement plans (other than ROTH IRA's) when a person reaches age 70 1/2 during 2019. Commencing in 2020 minimum distributions are now required in the year the taxpayer reaches age 72. The first minimum distribution must be taken by April 1 of the year following the year the individual turns age 70 1/2 (age 72 for those turning 72 in 2020 and beyond).  Thereafter, a minimum distribution must be withdrawn every year.  The withdrawals are calculated on the previous year ends fund balance and divided by an IRS table factor.  If a taxpayer waits until April 1 to take their first withdrawal then they effectively must take two withdrawals in that year.  Tax planning is important here as the additional withdrawal can have significant tax consequences when two withdrawals are taken in the first year.  Remember, Medicare premiums are increased at certain income levels.



Donald C.Hubbard

6507 Pacific Ave. #342

Stockton, CA 95207

 

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