Things
you can do for your future as the year unfolds.
Provided by Taylor McClish
Can you contribute more to your retirement plans
this year? In 2020, the contribution limit for a Roth or traditional individual
retirement account (IRA) remains at $6,000 ($7,000, for those making “catch-up”
contributions). Your modified adjusted gross income (MAGI) may affect how much
you can put into a Roth IRA: singles and heads of household with MAGI above
$139,000 and joint filers with MAGI above $206,000 cannot make 2020 Roth
contributions.1
Before making any changes, remember that
withdrawals from traditional IRAs are taxed as ordinary income, and if taken
before age 59½, may be subject to a 10% federal income tax penalty. To qualify
for the tax-free and penalty-free withdrawal of earnings, Roth IRA
distributions must meet a five-year holding requirement and occur after age
59½.2
Make a charitable gift. You can claim the deduction on
your tax return, provided you itemize your deductions with Schedule A. The
paper trail is important here. If you give cash, you need to document it. Even
small contributions need to be demonstrated by a bank record, payroll deduction
record, credit card statement, or written communication from the charity with
the date and amount. Incidentally, the Internal Revenue Service (I.R.S.) does
not equate a pledge with a donation. If you pledge $2,000 to a charity this
year, but only end up gifting $500, you can only deduct $500.3
These are hypothetical examples
and are not a replacement for real-life advice. Make certain to consult your
tax, legal, or accounting professional before modifying your strategy.
See if you can take a home office deduction for
your small business. If you are a small-business owner, you may want to investigate this.
You may be able to legitimately write off expenses linked to the portion of
your home used to exclusively conduct your business. Using your home office as
a business expense involves a complex set of tax rules and regulations. Before
moving forward, consider working with a professional who is familiar with home-based
businesses.4
Open an HSA. A Health Savings Account (HSA)
works a bit like your workplace retirement account. There are also some HSA
rules and limitations to consider. You are limited to a $3,550 contribution for
2020, if you are single; $7,100, if you have a spouse or family. Those limits
jump by a $1,000 “catch-up” limit for each person in the household over age 55.5
If you spend your HSA funds for nonmedical
expenses before age 65, you may be required to pay ordinary income tax as well
as a 20% penalty. After age 65, you may be required to pay ordinary income
taxes on HSA funds used for nonmedical expenses. HSA contributions are exempt
from federal income tax; however, they are not exempt from state taxes in
certain states.
Pay attention to asset location. Tax-efficient asset location is
an ignored fundamental of investing. Broadly speaking, your least tax-efficient
securities should go in pretax accounts, and your most tax-efficient securities
should be held in taxable accounts.
Asset allocation is an approach to help manage
investment risk. Asset allocation does not guarantee against investment loss.
Before adjusting your asset allocation, consider working with an investment
professional who is familiar with tax rules and regulations.
Review your withholding status. Should it be adjusted due to
any of the following factors?
* You tend to pay a great deal of income tax each
year.
* You tend to get a big federal tax refund each
year.
* You recently married or divorced.
* A family member recently passed away.
* You have a new job and you are earning much
more than you previously did.
* You started a business venture or became
self-employed.
These are general guidelines and are not a
replacement for real-life advice. So, make certain to speak with a professional
who understands your situation before making any changes.
Are you marrying in 2020? If so, why not review the
beneficiaries of your retirement accounts and other assets? When considering
your marriage, you may want to make changes to the relevant beneficiary forms.
The same goes for your insurance coverage. If you will have a new last name in
2020, you will need a new Social Security card. Additionally, the two of you
may have retirement accounts and investment strategies. Will they need to be
revised or adjusted with marriage?
Are you coming home from active duty? If so, go ahead and check the
status of your credit as well as the state of any tax and legal proceedings
that might have been preempted by your orders. Make sure any employee health
insurance is still there and revoke any power of attorney you may have granted
to another person.
Consider the tax impact of any upcoming
transactions. Are you planning to sell any real estate this year? Are you starting a
business? Do you think you might exercise a stock option? Might any large
commissions or bonuses come your way in 2020? Do you anticipate selling an
investment that is held outside of a tax-deferred account?
If you are retired, and in your seventies,
remember your RMDs. In other words, Required Minimum Distributions (RMDs) from traditional
retirement accounts. There is a new development to report on this, as the
Setting Every Community Up for Retirement Enhancement (SECURE) Act just altered
a key rule pertaining to these mandatory withdrawals. Under the SECURE
ACT, in most circumstances, once you reach age 72, you must begin taking RMDs
from most types of these accounts. The previous “starting age” was 70½.6
This new RMD rule applies only to those who will
turn 70½ in 2020 or later. If you were 70½ when 2019 ended, you must take your
initial RMD(s) by April 1, 2020, at the latest.6
If you have already begun taking RMDs, your
annual deadline for them becomes December 31 of each year. The I.R.S. penalty
for failing to take an RMD can be as much as 50% of the RMD amount that is not
withdrawn.6
Vow to focus on being healthy and wealthy in
2020. And don’t be afraid to ask for help from
professionals who understand your individual situation.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - thefinancebuff.com/401k-403b-ira-contribution-limits.html
[7/16/19]
2 - kiplinger.com/article/retirement/T032-C000-S000-how-much-can-you-contribute-traditional-ira-2020.html
[1/10/20]
3 - irs.gov/newsroom/charitable-contributions [6/28/19]
4 - nerdwallet.com/blog/taxes/home-office-tax-deductions-small-business/
[1/22/19]
5 - cnbc.com/2019/06/03/these-are-the-new-hsa-limits-for-2020.html
[6/4/19]
6 - thestreet.com/retirement/secure-retirement-act-makes-big-changes-to-how-you-save
[12/21/19]