Tax and Retirement Changes for the New Year

Tax and Retirement Changes for the New Year

by A. Scott White, CFP®, ChFC®, CLU®
President, Scott White Advisors

The Tax Cuts and Jobs Act of 2017 mandated several tax law changes that took effect in 2018, but a few additional changes took effect in 2019. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed into law in late December 2019. It contains the most comprehensive retirement account legislation in more than a decade. Here is a summary of changes that may affect your 2019 tax return.

Increased age for required minimum distributions from retirement plans

Individuals must start distributing retirement plan assets at age 72, up from the previous age of 70½. This only applies to those who have not yet started taking RMDs or turned 70½.

Higher retirement account contribution limits

401(k) base contribution: $19,000 (up from $18,500 in 2018)

401(k) catch-up contribution (for taxpayers age 50 and older): additional $6,000 (unchanged)

IRA base contribution: $6,000 (up from $5,500)

IRA catch-up contribution (for taxpayers age 50 and older): additional $1,000 (unchanged)

Higher HSA contribution limits

Self-only coverage: $3,500

Family coverage: $7,000

No “life stretch” for beneficiaries of IRAs

The life stretch IRA was an estate planning strategy that extended the tax-deferred status of an inherited IRA when it was passed to a non-spouse beneficiary. It allowed for continued tax-deferred growth of an Individual Retirement Account (IRA). Under the new law, non-spouse beneficiaries will have to take the funds in the inherited IRA within 10 years from the death of the original account owner.

No alimony deduction

For divorce and separation agreements made or modified in 2019 or thereafter, alimony payments will not be deductible. A spouse who paid alimony in 2019 cannot write the payments off on a tax return, and a spouse who received alimony in 2019 cannot count the payments as income.

No individual mandate penalty

The shared responsibility payment penalty—commonly referred to as the individual mandate penalty—had applied to individuals who were required to have health insurance under the Affordable Care Act but who didn’t get coverage and didn’t qualify for an exemption.  Starting with 2019, however, there is no longer a penalty. So, people who didn’t have health insurance in 2019 will not owe the penalty when they file their taxes in 2020.

Higher standard deductions

Standard deductions are higher for tax year 2019:

Married filing jointly: $24,400 (up $400)

Married filing separately: $12,200 (up $200)

Head of household: $18,350 (up $350)

Single: $12,200 (up $200)

Higher income brackets

Tax Brackets and Rates, 2019

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.  Past performance may not be indicative of future results. Keep in mind that individuals cannot invest directly in any index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.