2020 Changes #illumedati   Recently updated !


Hey everyone, it’s Finance Fridays again. Today is just going to be a short post about highlighting the “2020 Changes” regarding retirement contributions and taxes.

2020 Changes
Image by Gerd Altmann from Pixabay

2020 Changes

First things first, you can read all about it direct from the IRS:

Retirement Contributions

2020 Taxes (44 pages!)

However, I will try to break down what I think is important as simply as possible.

401k/403b/457 Contributions

401k/403b/457 contributions will increase from $19,000 in 2019 to $19,500.

Catch-up contributions (for 50 and older) has also increased from $6,000 in 2019 to $6,500 in 2020.

IRA plans, either traditional or Roth will remain at $6000 (or $7000 for catch-up contributions). So no changes to your annual Backdoor Roth IRA.

Health Savings Accounts (HSA)

There will be a slight increase from $3500 to $3550 for individuals or $7000 to $7100 for families.

Estate and Gift Taxes

The lifetime gift and estate tax exemption per individual was $11.4 million in 2019, but will increase slightly to $11.58 million in 2020.

Annual gift exclusion will remain at $15,000.

Income Taxes

Made in Excel – Data from IRS.gov

Basically they increased the ranges up a little compared to 2019. Long story short, if your salary doesn’t change at all, you may pay a little less in taxes this year. If your salary went up a little this year, you’ll probably pay the same or more. Essentially, this was just an inflation adjustment.

There is a lot of other tax stuff but one to note is:

There is now a slightly higher standard deduction, $12,400 for individuals, $18,650 for heads of households, and $24,800 for married filing jointly. It was previously $12,200, $18,350, and $24,400 respectively.

It’s not a huge increase, but hey, at least it’s something.

Anything else?

Yea, as an aside, I think 2020 will be finally be the year when I start putting serious money into paying down our loans. It is at this point that we are going to start carefully paying down extra principal on our loans on a quarterly basis — or just pay off the higher interest loans in one click if we have enough money.

Our aggressive plan is to have them gone in the next 3 years. Hopefully by the end of 2033, but it may take until 2025 for a more conservative estimate. However, I do want to clarify that they probably won’t be completely gone. The loans that are sitting around 1% or 2% I don’t really care about. Even the 2.5% ones I’m not too worried about.

While my wife wants them all gone, I don’t see a reason to pay off loans that are at or below the level of inflation. While there is a psychological component to “not having any debt” — in terms of efficiency, those loans are at a lower interest rate than our house. It would make more sense to simply make more payments on the house and/or utilize build a taxable account. I am going to try to convince her that when only those low interest loans are left , we can consider the loans “paid off”. Then the low interest loans would just continue on their course to the original 20 year payoff plan.

TL;DR

Small changes for 2020.

Just remember to change your 401k/403b/457 contributions to maximize to the new limit of $19,500 and catch-up contributions too (if applicable).

No changes to Backdoor Roth IRA.

There probably won’t be a dramatic change in your taxes for 2020, barring significant changes in income. Stay the course.

2020 will be (finally) be the year of aggressively paying down our student loans.

Finance Fridays Sensei

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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