FAQs re: 2020 Financial Planning and Retirement Contribution Limits

Jeanne Sullivan |

by Philip Lee, CFP®

Here are some Frequently Asked Questions I get for those thinking about their finances. Of course, there is more to financial planning and investment advisory services than these limits:

Q: What is the max I can contribute to my 401(k), 403(b), 457 plans in 2020?
A: The elective deferral amounts are $19,500 and if you are 50 years old or older you can defer an additional $6,500 for a total of $26,000.  Even if you turn 50 years old at the end of 2020 you can still participated in the “catch-up” limit.

Q: What is the maximum I can contribute to my IRA or Roth IRA in 2020?
A: You can defer $6,000 with a $1,000 catch up provision if you are 50 years old or older. Be aware that direct Roth IRA contributions are phased out depending upon your tax filing status –phase outs start at $139,000 for single filers and $206,000 for married couples filing jointly.

If you cannot contribute directly to a Roth, consider “back door” Roth strategies such as conversions.

Q: Will I still get a bump-up in my pay when I exceed the Social Security wage base?
A: In 2020 the Social Security wage base is $137,700, thus your earned income over this limit will no longer be subject to social security tax.  The employee/employer Social Security tax rate are 7.65% for 2020, including 6.2% for the OASDI portion and 1.45% for the hospital insurance portion

Q: What is the 2020 annual gift tax exclusion? How much can I gift without filing a gift tax return?

A: In 2020 it is $15,000. You don’t need to worry about filing gift tax returns for gifts under this limit.   If you are married, remember each spouse can gift $15,000 to one individual for a total of $30,000.  Maximizing such gifting for married couples is often called “gift splitting”.

Q: Where do I find more information like this?
A: Great, be engaged!  

The IRS website is a great resource at www.irs.gov.

The College for Financial Planning publishes an annual summary which can be found here.

Contact us at Financially In Tune 781-587-0582.