2020 Tax Brackets and How Much You Can Save for Retirement
If you want to stash away more money for retirement in 2020, the Internal Revenue Service (IRS) recently announced that the contribution limits for some popular retirement accounts have increased.
Also experiencing a change for 2020 are the IRS tax rate tables and standard deductions.
Let’s take a look at the retirement account changes first.
Workplace Retirement Accounts
The maximum contribution for those who participate in a 401(k), 403(b) and most 457 plans has increased from $19,000 to $19,500 in 2020.
The “catch-up” contribution limit for employees aged 50 and over, who participate in these plans, has increased from $6,000 to $6,500. Someone in their 50s, for example, can now contribute up to $26,000 to an employer 401(k) plan in 2020.
Individual Retirement Accounts
The maximum contribution for traditional and Roth Individual Retirement Accounts will remain the same for 2020. The maximum contribution is $6,000 and the “catch-up” contribution for those 50 and over is $1,000.
What has changed slightly for the traditional deductible IRA account is the number of people who are eligible to receive a tax deduction after contributing to one. Here are the new phase-out ranges:
For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000; up from $64,000 to $74,000.
For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000; up from $103,000 to $123,000.
For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $196,000 and $206,000; up from $193,000 and $203,000.
Standard Tax Deductions
Here are the new standard deductions for the 2020 tax year:
For married couples filing jointly, the standard deduction rises to $24,800, up $400.
For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400, up $200.
For heads of households, the standard deduction increases to $18,650, up $300.
Marginal Tax Rates
The top tax rate for 2020 remains 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly).
Here are the other marginal tax rates:
35% for incomes over $207,350 ($414,700 for married couples filing jointly).
32% for incomes over $163,300 ($326,600 for married couples filing jointly).
24% for incomes over $85,525 ($171,050 for married couples filing jointly).
22% for incomes over $40,125 ($80,250 for married couples filing jointly).
12% for incomes over $9,875 ($19,750 for married couples filing jointly).
We encourage you to speak with your wealth advisor and tax professional to understand how the updates may affect your unique situation.