- Understanding tax updates can open the door to meaningful conversations with your clients and set you apart.
- Put your clients’ hard-earned money to work for them with the increase to retirement plan contributions.
- Ease your clients’ healthcare cost concerns with a health savings account (HSA)
For many of us, a new year can bring new resolutions meant to improve our lives. It also brings a new set of tax laws. And fortunately, the IRS has made some adjustments that can possibly put more money in your clients’ pockets in 2020.
Now is a great time to schedule annual portfolio reviews with your clients. In this article, we provide insight into a few of the more relevant tax changes — all with the goal of helping your clients resolve to save and build wealth for their future.
1. Increase to standard deduction
Perhaps the most notable update to the 2020 tax laws is the increase to the amount allowed for a standard deduction. The IRS now allows $12,400 for singles, which is up from $12,200 in 2019. If your clients are married and filing jointly, the standard deduction is $24,800, a $400 increase from last year.1
2. Higher retirement plan contribution limits
While IRA limits for Roth and traditional remain the same ($6,000, plus another $1,000 for those 50 and over), the IRS has raised the contribution limits for 401(k), 403(b), and most 457 plans to $19,500, as compared to $19,000 in 2019.2 If your clients are over age 50, they can contribute an extra $6,500 on top of the $19,500 ($26,000 total) — up $1,000 from last year.2
It’s also important to note the IRS has limited Roth contribution amounts for your clients considered high-income earners. If they’re single and their adjusted gross income is between $124,000 and $139,000, or between $196,000 and $206,000 for married couples filing jointly, they won’t be able to make a full contribution directly to a Roth IRA.2
3. Higher HSA contributions
As you already know, funding a health savings account (HSA) is a great way for your clients to set aside money for medical expenses and gain tax benefits in the process. And with 137 million Americans struggling to pay their medical bills,3 HSAs may be one solution to help bring relief.
HSA contributions and withdrawals are tax free, assuming they’re used for a qualified medical expense. Any unused HSA funds can be rolled over indefinitely and invested for added tax-free growth.
In 2020, your clients can contribute up to $3,550 to an HSA if they have individual health coverage. For those with family health coverage, that limit doubles to $7,100. If they're 55 or older, they get a $1,000 catch-up.4
4. Individual income tax brackets
As it does most years, the IRS has also made inflation adjustments to the income tax brackets.1 We have created this handy Tax Facts at a Glance resource that gives those rates as well as the information you need for child tax credits, education incentives, corporate and qualified business limits, estate taxes, capital gains and qualified taxes, and more.
As you can see, 2020 is brimming with opportunities to help your clients put their hard-earned dollars to work for their future. Take the time to set up an annual review with each one today and put your knowledge and expertise to work for their future and yours.
Things to Consider:
- Familiarize yourself with tax updates annually
- Run through your client list to see who may be impacted
- Set up a review with your clients to discuss
1. Internal Revenue Bulletin: 2019-44; Internal Revenue Bulletin: 2018-57.
2. “401(k) contribution limit increases to $19,500 for 2020; catch-up limit rises to $6,500”, IRS.gov, November 2019
3. “Prevalence and Correlates of Medical Financial Hardship in the USA,” by K.R. Yabroff, Jingxuan Zhao, Xuesong Han, and Zhiyuan Zheng., May 1, 2019.
4. “Health Savings Account Limits for 2020,” by Rocky Mengle, Kiplinger.com, Sept. 30, 2019.
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as, medical, insurance, securities, tax, legal or financial advice or guidance. Please consult your personal independent advisors for answers to your specific questions.
Neither Transamerica nor its agents or representatives may provide medical, tax, investment or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal professionals and financial professional regarding their particular situation and the concepts presented herein.