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Five Retirement Savings Tax Changes You Need to Know in 2020

February, 2020

Only 55 percent of the adult population participate in a workplace retirement plan, according to data from the U.S. Bureau of Labor Statistics published in 2018. The data also found that those who do have workplace retirement plans, aren’t investing enough.

The Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act, was passed by Congress in December 2019 to help Americans increase their retirement savings. But this law has also brought many tax changes important to small business owners, employees, retirement account beneficiaries, new parents, individuals in or near retirement, and simply those with retirement savings accounts.

Here are the top five tax changes you need to know in 2020 because of the SECURE Act:

1. The required minimum distribution (RMD) age increased from 70.5 to 72. This change only applies to individuals who were 70.5 years of age after December 31, 2019. If you reached the age of 70.5 in 2019, you must still take your first RMD by April 1, 2020.

2. Seniors can now continue contributing to individual retirement accounts (IRA) after age 70.5, as long as they have earned income.

3. Assets from inherited retirement accounts must now be distributed within 10 years after the IRA owner’s or 401(k) participant’s death. Before the SECURE Act, assets could be distributed over the beneficiary’s lifetime. The new law only applies to accounts that are inherited in 2020 and beyond.

4. Are you having a baby or adopting a child? You can now withdraw up to $5,000 from an IRA or an employer-sponsored retirement plan to assist in paying for birth and adoption expenses. There is no penalty on this withdrawal.

5. Due to inflation, the maximum 401(k) contribution in 2020 is $19,500. If your birth year is before 1971, you can contribute an additional $6,500. Up to $13,500 can be contributed to Simple IRAs in 2020 with people ages 50 and up able to contribute as much as $16,500 this year.

Have tax questions about changes to your retirement savings? Contact Certified Public Accountant and Consultant Anthony Hoffmaster at 919-435-4413 or by email [email protected]