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Amid the COVID-19 (coronavirus) pandemic, several tax deadlines have been delayed. So what does this mean if you haven’t filed your taxes yet?
For starters, you now have some extra time. This year’s Tax Day has changed to July 15, 2020, and this includes both the filing and payment deadline. Both Missouri and Kansas have also delayed their state tax deadlines as well to align with the delayed federal deadline. In the meantime, the IRS is still accepting tax returns and processing refunds. If you anticipate a refund, you are encouraged to file by April 15 for a timely refund.
To help you understand this new information and break down the new contribution limits, deadlines and tax details, here is some key information to make the most of your retirement savings and get through tax season with less stress.
Highlights for your 2019 tax season
Tax filings can be complex, and it’s not unusual for people to feel anxious or overwhelmed by tax guidelines. To help simplify the details, here are key dates and rules in the chart below, followed by an overview of recent changes to contribution limits, age guidelines and other tax details.
Tax dates to know
The SECURE Act and retirement account rule changes include a delay in the required minimum- distribution (RMD) age. In late 2019, a new law was passed called the SECURE Act that delays when you must start taking your RMD.
Starting in 2020, the age you need to start withdrawing money from your IRA is now 72 instead of age 70½. So, if you don’t need to use your retirement money once you turn 70½, you now have more time for your IRA funds to stay invested. However, if you turned 70½ before January 1, 2020, you must start your RMDs according to the previous law.
Elimination of “stretch IRA”
One of the biggest changed that came from the SECURE Act was the elimination of the “stretch IRA.” While there is no change to primary beneficiaries such as spouses, now other beneficiaries like children, won’t be able to stretch the distributions out over their entire lifetime. It will be limited to a ten year window.
Traditional IRA contributions will have no age restrictions
The SECURE Act also changed the age limit for traditional IRA contributions. Now you can continue to put money into your IRA in the same year you turn 70 ½ and beyond, if you earn an income. If you are working into your 70s, the age cap for putting savings into a traditional IRA disappears. This goes into effect for the 2020 tax season, so for the 2019 tax year filing, which are based on wages earned in 2019, the 70½ age limit is still in place.
Remember, you can make 2019 IRA contributions until July 15, 2020. Your total contributions cannot be more than $6,000, or $7,000 if you’re 50 or older and these contribution limits won’t change in 2020.
Other contribution updates
Increased contribution limits for 401(k)s: For 2020, the contribution limit goes up to $19,500 from $19,000. Contributions to 401(k)s usually apply to the same calendar year they were taken out of your paycheck. The new law also allows part-time workers to participate in 401(k) plans. To be eligible for this benefit, employees must have worked at least 500 hours a year for three consecutive years, or 1,000 hours in one year.
Increased contribution limits for HSAs: If you have an HSA and didn’t reach the contribution limit in 2019, you can contribute up until the July 15, 2020 tax deadline. This will also count toward your 2019 federal income tax return. The contribution limit for 2019 was $3,500 and will go up $50 in 2020 to a total of $3,550.
Increased standard deduction and new tax brackets: The IRS released the new tax brackets for the 2020 tax year. The seven tax rates didn’t change from 2019 but the ranges were adjusted to account for inflation. It is important to note that the tax brackets were lowered starting in tax year 2018 as a result of Tax Cuts and Jobs Act. For the 2019 tax year, the standard deduction rises to $12,200 for single taxpayers and is up to $24,400 for married filing jointly. In order to make itemizing deductions worthwhile, make sure your deductions are greater than the standard deduction you are entitled to.
Events like the SECURE Act and the impacts of COVID-19 are impacting financial plans across the U.S. Be sure to review your financial plan and cross-check how these changes directly effect you. Other tax deadlines and changes should be noted now—both to prepare for your 2019 tax filing and to understand how the changes can impact your 2020 tax filing next year.
If you’re unclear about what these updates mean for you, reach out to your financial and tax professionals for guidance.
