ABLE Accounts

Find out about how you or your family can benefit from ABLE accounts if there is someone with a disability in your family.  

SECURE Act Podcast

This podcast will provide you with details pertaining to the SECURE Act that went into effect on January 1, 2020 as it relates to you and your finances.

Highlights of Changes for 2020 Retirement Plan Contribution Limits

Great news for savers! The IRS announced today that taxpayers will be able to contribute $19,500 for employees who participate in 401(k), 403(b), most 457 plans and the Federal Government’s Thrift Savings Plan, up from $19,000 in 2019.  The catchup contribution limit for employees age 50 and over who participate in these plans has increased from $6000 to $6500.  

The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020.

Other highlights include.

  • The annual additions limit for defined contribution plans increases to $57,000.
  • The annual additions limit for defined benefit plans increases to $230,000.
  • The annual compensation limit increases to $285,000.
  • The Social Security Wage Base increases to $137,700.
  • The compensation limit for determining who is a highly compensated employee increased for the first time in five years, and is now $130,000.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020:

  • 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.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000

The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000. 

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59 (PDF), available on IRS.gov.

Financial Literacy And Educating Youth Locally

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As the United States continues to offer more and more financial education in schools, colleges, workplaces, non-profits and government agencies, only ⅓ of states actually require students to take a personal finance course in high school.  Even more alarming is the fact that less than ⅓ of adults understand three basic financial literacy topics by age 40, even though most of these adults are making difficult financial decisions at a much younger age. We all know the key to staying healthy is eating well and exercise, but it’s just as important to be financially healthy.   Financial literacy is the key to financial health, lifelong stability and wealth. 

Here in Montgomery County, many of our middle school students are fortunate to be able to participate in Junior Achievement Finance Park®. Junior Achievement is the world’s largest organization dedicated to educating students in grades K-12 about financial literacy, work readiness, and entrepreneurship, reaching more than 8 million students in 100 countries worldwide. In MCPS, the program reaches over 12,000 students each year and has transitioned to a 7th grade lesson sequence and field trip to the state-of-the-art JA Finance Park immersive learning facility at Thomas Edison High School.  At JA Finance Park, students become “adults” for the day with a career, salary, credit score and financial obligations that they must balance. 

In addition, a few MCPS high schools offer an Academy of Finance Pathway. The Academy of Finance connect high school students with the world of financial services and personal finances.  The curriculum covers banking and credit, financial planning, global finance, securities, insurance, accounting and economics. 

Programs such as these are a great way of putting our children in a position for financial success, however, raising our children to be financially aware is not just the responsibility of our schools. Starting at a very early age, children should be educated about how finances work – from creating a budget to learning how to save money for emergencies, teaching them the financial skills necessary to become responsible and self-sufficient adults is essential for their life-long success.  Each family is unique with their approach to handling their own finances and what their expectations are, but there are a few common tasks and principles that can help young children achieve the necessary skills for a solid foundation.

  1. Start with budget basics – Focusing on what money is coming in and what money is going out is key to making sure you don’t run out of money each month.  Creating a budget can also help you save for a big purchase and can develop the habit of putting money away for an emergency fund.  
  2. Learn to live within your means – Creating realistic goal setting and understanding “wants” vs “needs are key to developing mindful money practices.
  3. Build a solid credit score – Young adults need guidance in choosing their first credit card wisely as well as recognizing how to maintain a strong credit score.  This should include checking each credit statement thoroughly, paying off the balance monthly and understanding compound interest.
  4. Earn while you learn – Becoming a smart investor also takes time and you don’t need to be an expert to grow your wealth.  Some important lessons in reaching financial independence include learning to pay yourself first, staying in for the long term and diversifying your risk.  
  5. Be responsible and accountable – It’s important to let your kids make financial mistakes rather than always coming to their rescue when the stakes are low.  The only way our children will learn to become fully responsible and independent adults is to be given the opportunity to fail and pick themselves up without our help.  

Teaching your children about money at any age will take time and won’t always be easy.  If you want your children to know how to successfully manage their money and be financially responsible adults, you must take the time now to give them the tools they need. Modeling good financial behaviors when your children are young and keeping the lines of communication open when it comes to dealing with money will help continue to guide them on their life-long financial journey.  

End of Year W4 Checkup

According to a recent survey, over 80% of Americans never updated their W-4 after the 2018 TJCA, which made sweeping changes to the tax rates.  Those that never changed their withholdings may now be in a position of currently owing the IRS additional amounts, plus possible interest and penalties.  

In order to ensure that you don’t get hit with any IRS penalties in the future, it’s important to revisit your W-4 withholdings annually.  The information you file on your W-4 determines how much money you’ll owe, or get back, when you’re filing your taxes. If you withhold too little, you may owe the IRS come tax time. However, if you withhold too much, you could end up with a large refund, which means you’ve essentially given an interest-free loan to the government.

Start by using the IRS withholding calculator to determine the right amount for you to withhold. If your situation is complicated, or if you’re confused, you may also want to consult with an accountant.  In addition, you should also revisit the W-4 if you’ve had a major life changing event, such as having a child, getting married or divorced, or if your spouse dies.  Next, review what your current withholding is. If the numbers don’t match up, you’ll want to adjust your W-4, which you can do at any point during the year.  

As you revisit your W-4, it’s also important to keep in mind that the 2020 projected tax rate schedules.

The key to paying the right amount of tax is to update your W-4 regularly. You should revisit your W-4 whenever you have a major personal life change. As we have written in the past, the potential for both a tax bill and a tax refund should be zero, or close to it. However, if you count on a big tax refund every year, pay attention to your withholding because it directly impacts your refund.  You can adjust your W-4 at any time throughout the year, but if you do it later in the year, there will be less impact on your taxes for that year.

If you need any assistance with your taxes or updating your W-4, you should speak to a professional.  We are happy to provide you with CPA recommendations if you would like. As always, please reach out to us with any questions or comments you might have.