Retirement Plan Contribution Limits for 2020

The 2020 contribution and benefit limits were announced in early November by the IRS.  The annual limit for IRAs remains the same at $6,000 with the catch-up contribution for individuals aged 50+ also remaining at $1,000.

There are slight increases for other retirement plans, as follows:

For 401(k), 403(b) and most 457 plans, plus the federal government’s Thrift Savings Plan, the limit is bumped up $500, from $19,000 to $19,500 annually. For individuals aged 50+, the catch-up contribution also goes up $500, from $6,000 to $6,500.

In addition, SIMPLE retirement accounts now have an increased contribution limit of $13,500, up $500 from the current $13,000.

Retirement plan account holders should also be aware of annual limitations and income phase-outs for defined contribution and defined benefit plans in the workplace.

There are new income ranges for determining eligibility to contribute to a Roth IRA and to claim the Saver’s Credit, which all increased for 2020. The income phase-out in 2020 for individuals contributing to a Roth IRA went up for singles, heads of households, and married couples filing jointly. Additionally, taxpayers may be able to deduct contributions from a Traditional IRA if they meet certain criteria. A list of those figures is available in IRS Notice 2019-59.

As always, this new information is strictly for one’s own knowledge, and we encourage individuals to consult their trusted advisors regarding their specific financial situations to determine what works best for them.

Boost your retirement savings with alternative assets

Whether you’re already in the real estate market, invest in precious metals, or are interested in putting private equity in your retirement plan, nontraditional investments are a powerful way to build a more diverse retirement portfolio that provides a hedge against stock market volatility. What many people don’t know is that there are many different types of accounts that can be self-directed to include those nontraditional investments within them. So, if you’ve reached your annual contribution limit on an employer sponsored plan, or an IRA with a brokerage firm, you can still open and fund an account with Next Generation through a transfer or a rollover. Our self-directed IRA specialists are happy to review your options with you.

The deadline to contribute to your retirement plan for the 2019 tax year* is April 15, 2020, but it’s always the right time to contact Next Generation to open your self-directed IRA. You can arrange a complimentary educational session if you have questions about self-direction as a retirement strategy. Alternatively, you can contact our helpful team of professionals directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com. You can always read more about the many options and benefits of self-direction on our FAQs page.

*Please visit our website for 2019 contribution limits.

What is a Traditional IRA?

A traditional IRA (individual retirement account) is any IRA that is not a Roth IRA or a SIMPLE IRA. Click here to learn about Roth IRA versus traditional IRA.

You can set up and make contributions to a traditional IRA if you (or, if you file a joint return, your spouse) received taxable compensation during the year, and you were not age 70½ by the end of the year.

You can also have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan.

If both you and your spouse have compensation and are under age 70½, then each of you can set up an IRA but you cannot both participate in the same traditional IRA.

If you file a joint return, then only one of you needs to have compensation.

A traditional IRA is an account that is used to save pre-tax dollars for use in retirement. An IRA can be opened at a variety of places such as a brokerage, mutual fund company, or even at your local bank. The money in the account can generally be invested in stocks, bonds, mutual funds, or CDs, subject to the availability of products within your account.

WHAT IS THE TRADITIONAL IRA PRETAX ADVANTAGE?

The primary benefit of a traditional IRA is that in most cases, the contributions are made on a pre-tax basis. This means that when you deposit money into the traditional IRA, you can deduct that amount from your taxable income. This results in paying less income tax for the year.

In addition to receiving the tax deduction up front from your traditional IRA, the money in the traditional IRA account grows tax deferred. Any interest or gains from the traditional IRA investments are not taxed when the gains are realized. Instead, the gains from your traditional IRA are deferred until money is withdrawn from the IRA, at which point the money is taxed as ordinary income.

WHAT ARE TRADITIONAL IRA ELIGIBILITY REQUIREMENTS?

Anyone under age 70 ½ with earned income is eligible to open a traditional IRA, but there are some restrictions as to who can deduct the contributions. There are income limits that are used to determine how much of the contributions are deductible, if you or your spouse are participants in an employer plan.

WHAT ARE TRADITIONAL IRA DISTRIBUTION REQUIREMENTS?

One of the potential disadvantages of a traditional IRA is the forced distribution that must begin at age 70½. Even if you don’t need the money, if you do not take at least the required minimum distribution (RMD) each year, you are subject to stiff penalties. In addition, withdrawals made prior to turning age 59½ are subject to an early withdrawal penalty in addition to taxes owed.
IS A TRADITIONAL IRA RIGHT FOR YOU?

If your employer doesn’t offer a retirement plan, then a traditional IRA is generally a good option for saving pretax money for retirement. Keep in mind that, depending on whether you, or your spouse if you are married, are covered by a retirement plan at work, you may be subject to income limitations that affect the deductibility of your contribution to a traditional IRA.

For many people, once they reach retirement, they find themselves in a lower tax bracket than when they were employed. This means you receive a greater tax break on the contributions during your working years, and later in life when you are not working and withdraw this money, it is taxed at a lower rate. Unfortunately, it is impossible to predict what will happen to tax rates in the future, which is why it is important to have multiple sources of retirement savings. If we have not answered all your questions regarding “what is a traditional IRA,” please feel free to contact us. We’re here to help.

RESOURCES LINKS

• What is a Coverdell Education Savings Account?
• What is a self-directed IRA?
• Roth IRA versus a Traditional IRA?
• What is a self-directed IRA? (watch the video)

2010 Contribution Deadline Looms

2010 Contribution Deadline

As many of you know, the tax deadline and contribution deadline for 2010 has been extended until Monday, 4/18/11. As it is quickly approaching, it is imperative you make arrangements now if you wish to make an IRA contribution for 2010.

For our existing clients, those whose account has already been opened, we can accept contribution checks up until 4:00 PM on Monday, 4/18/11.

For those who have been considering opening an account, if we have your completed account documents and all required information as well as your contribution check before 2:00 PM on Friday, we can still get your account opened and process your contribution for 2010.

For all those looking to really jump start their investing, please note you may also make your contributions for 2011 as well as 2010.

As always, contact any of our staff members for questions at 888-857-8058.

To find forms to open an account:

Open a Next Generation Account

Forms to make a contribution:

Client Transaction and Deposit Forms

Many Americans Abandon Assets in Old 401(k)s

Don’t be one of them! And, if you are, make plans now to get these funds into an IRA. You will typically have more options for investments and lower fees. If you choose a self-directed IRA administrator you will also have total control over your investments.

A recent survey done by Harris Interactive showed that 30% of respondents said they failed to rollover those retirement assets because they are unsure about the rollover process. And that’s not all – 24% of those with old 401(k)s have between $10,000 and $49,999 in those accounts, and those closest to retirement (ages 55 and older) are leaving the largest amounts of money in these old plans – 29% with $50,000 or more!

Let us show you how simple it is to roll over these funds into a self-directed IRA. Please follow this link for more information on this simple process.