Tax laws are ever-changing. This is not new, and keeping up with the changes is enough to make your head spin. This year the changes bring good news to those who want to spend less and save more money in 2020.
The IRS has made revisions in two places, making it easier to save for you and your client’s retirement and healthcare. Those are two areas everyone would like to stockpile more cash. Let’s go over the basics of the new tax laws and how they will affect your HSA and 401(k)’s.
Unfortunately, most American’s fall short in retirement savings. While IRAs and 401(k)’s have made it easier to save, on average most of us are not using them to their full potential and, in turn, will not have enough to retire. Congress, near the end of 2019, addressed this issue by making a few small but still significant changes.
The IRS has raised the employee contribution limit for 401(k), 403(b), and most 457 plans to $19,500. This is an increase from $19,000 in 2019. While $500 a year may not seem like much, that adds up quite quickly, especially if you are getting started on your retirement savings early in your working years.
The is even more good news if you are over 50. You are now able to pay an additional $6,500. That’s also a bump up from $6,000 in 2019. Again, only $500, but what a difference that can add up to in a hurry. The only point to be aware of is this; The IRS does set limits for high-income earners and their ability to make direct contributions to their Roth IRAs. Roth IRAs are accounts that you can save your after-tax dollars. The money can grow tax-free and use it in retirement free of taxes. Taking advantage of these changes can boost your retirement savings and get you a few steps closer to your dream of care-free retirement days.
First of all, if you don’t have an HSA account, get one. These accounts allow you to put away tax-free dollars and spend them tax-free on healthcare costs. They are similar to FSA accounts except in that your money can rollover at the end of the year. No need to find a way to spend it or lose it.
In 2020, individuals with self-only health coverage are now able to save up to $3,550. That’s up from $3,500 in 2019. Those HSA account holders with a family plan can now save up to $7,100 in this account. An increase from $7,000 in 2019. Again, not massive amounts of money, but anytime you can save and spend dollars tax-free, always take advantage. Healthcare costs are something on the rise, and no matter how “healthy” we are, healthcare cost is inevitable. Setting aside money just for that purpose is an excellent tax move. Statistics show that most Americans are not taking advantage of HSA or FSA accounts.
These are only 2 of the many tax changes made for 2020. They are, however, changes that most American’s can take advantage of and apply to their everyday lives. Pass the word around to your clients, friends, co-workers, and family.