Accretive On: Tax Changes for 2020

November 21, 2019

Around November of each year, the IRS releases their changes for the forward-looking year. These changes include, but are not limited to, the maximum deferrals for various retirement accounts, the cost of living adjustment for Social Security income, the maximum income considerations for retirement plans, inflation adjustments on income tax brackets as well as the inflation adjustment for the standard deduction, among other income based inflation adjustments.

Below are some of the notable items as well as tips to consider on how these changes may impact you.

Savings Thresholds

  • Maximum 401(k) contributions for employees increased from $19,000 to $19,500. For those who will be age 50 or older in 2020, they are permitted to make a catch-up contribution of $6,500, which is an increase of $500 from last year.

TIP: reach out to your corporate benefits department and remind them to increase your contribution to the maximum amount for 2020. If you are going to be age 50 or older in 2020 then you can also participate in the catch-up contribution.

  • Maximum contribution to Defined Contribution plans increased to $57,000 from $56,000; this is further increased for individuals age 50 or older in 2020 to $63,500 from $62,000.

TIP: This is going to impact business owners the most. If you are a business owner and aren’t taking advantage of an individual 401(K), or are contemplating the benefits of a broader 401(k) for your workforce then reach out to us to have a discussion on the appropriate solution for you.

  • IRA and Roth IRA contribution limits were unchanged at $6,000 plus $1,000 as a catch-up contribution for individuals age 50 or older in 2020.
  • Note – the income phaseouts for IRA and Roth IRA contributions changed. You can determine if you’ll be impacted by reviewing the IRS website:
  • Flexible Savings Account (FSA) cap increased to $2,750

TIP: As a reminder, FSAs are a use or lose it account. If you do not use the amount contributed by the end of the year then you forfeit the unused balance.

  • Health Savings Account (HSA) cap for single filers increased to $3,550 and $7,100 for families. This is an increase of $50 and $100, respectively. The catch-up contribution of $1,000 is unchanged.

TIP: To complete the maximum contribution in any tax year then you must be covered under a high deductible health plan for the full calendar year.

Income Tax Changes in 2020

  • While the tax rates are staying the same in 2020, the income thresholds for various brackets all participated in inflation adjustments as follows:
  • The standard deduction for 2020 is as follows:

Note: Individuals over age 65 or blind receive an additional $1,300

Estate and Gift Taxes

  • The lifetime gift and estate tax exemption will be $11.58 million per individual, up from $11.4 million in 2019.
  • The annual gift exclusion, which is the amount you can give to any other person without it impacting your lifetime exemption, will stay unchanged at $15,000 for 2020.

The Tax Cut and Jobs Act of 2018 remains in effect through 2025. After 2025, many of the changes for individuals and couples revert back to the pre-TCJA rules. This includes, but is not limited to, removal of the $10,000 deduction cap on state and local taxes, the cap on the maximum mortgage for calculating deductible mortgage interest goes from $750,000 back to $1,000,000, deductibility of investment advisor expenses, and the inclusion of personal exemptions. The lifetime gift and estate tax exemption will also revert to its pre-TCJA level of $5.49 million per individual (indexed for inflation).  

Year-end is a great time to take an inventory of where you are financially – do a tax projection for this calendar year, talk to your benefits department to ensure proper deductions are taking place as we turn into the New Year, and lay the planning foundation for the next year.

Financial Planning

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Important Information

Accretive Wealth Partners, LLC (“Accretive Wealth”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Accretive Wealth and its representatives are properly licensed or exempt from licensure.This commentary is a general communication and the information contained herein is being provided for educational and informational purposes only. This commentary does not constitute investment advice and it should not be relied on as such. It is not intended to be and should not be considered a solicitation to buy or an offer to sell a security or a recommendation for any specific investment product, strategy, security or any other purpose. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Any examples used are generic, hypothetical and for illustration purposes only. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions that are solely the opinion of Accretive Wealth and should not be construed as indicative of actual events that will occur.Any performance presented herein is for illustrative purposes only. Past performance shown is not indicative of future results, which could differ substantially.  Current data may differ from data quoted.The views and strategies described herein may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities or gain exposure to such asset classes and financial markets.Information contained herein that is not proprietary to Accretive Wealth has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Accretive Wealth.For additional information, please visit our website at