Financial deadlines and rules to know for this tax season
Amid the COVID-19 (coronavirus) pandemic, several tax deadlines have been delayed. So what does this mean if you haven’t filed your taxes yet? You now have some extra time.
This year’s Tax Day has changed to July 15, 2020 and this includes both the filing and payment deadline. Both Missouri and Kansas have also delayed their state tax deadlines as well to align with the delayed federal deadline. In the meantime, the IRS is still accepting tax returns and processing refunds. If you anticipate a refund, you are encouraged to file by April 15 for a timely refund.
We are here to help you understand this new information and break down the new contribution limits, deadlines and tax details. Below is some key information that can help you make the most of your retirement savings and get through tax season with less stress.
Highlights for your 2019 tax season
Tax filings can be complex, and it’s not unusual for people to feel anxious or overwhelmed by tax guidelines. To help simplify the details, we listed some key dates and rules in the chart below, followed by an overview of recent changes to contribution limits, age guidelines and other tax details.
Tax dates to know
|Date||Why is this important?|
|January 1, 2020||Start date of most other major provisions in new SECURE Act|
|July 15, 2020||Extended deadline for Federal, Kansas and Missouri 2019 tax filings|
|July 15, 2020||Last day for 2019 individual retirement account (IRA) contributions|
|July 15, 2020||Last day for 2019 health savings account (HSA) contributions|
|December 31, 2020||Recommended deadline for submitting HSA and flexible spending account claims for 2020; employers may have grace periods|
Retirement account rule changes
Delay in required minimum distribution (RMD) age
In late 2019, a new law was passed called the SECURE Act that delays when you must start taking your RMD. Starting in 2020, the age you need to start withdrawing money from your IRA is now 72 instead of age 70 ½. So, if you don’t need to use your retirement money once you turn 70 ½, you now have more time for your IRA funds to stay invested. If you turn 70 ½ on or after January 1, 2020, you are subject to the new rule and have extra time before you need to start withdrawals. However, if you turned 70 ½ before January 1, 2020, you must start your RMDs according to the previous law.
Traditional IRA contributions will have no age restrictions
The SECURE Act also changed the age limit for traditional IRA contributions. Now you can continue to put money into your IRA in the same year you turn 70 ½ and beyond, if you earn an income. If you are working into your 70s, the age cap for putting savings into a traditional IRA disappears. This goes into effect for the 2020 tax season, so for the 2019 tax year filing, which are based on wages earned in 2019, the 70 ½ age limit is still in place.
Remember, you can make 2019 IRA contributions until July 15, 2020. Your total contributions cannot be more than $6,000 ($7,000 if you’re 50 or older). These contribution limits don’t change in 2020. Also, keep in mind that your traditional IRA contributions may be tax-deductible depending on your income and filing status. These thresholds are also subject to other rules, like whether or not you and/or your spouse have a retirement plan through your employer. Consult with your tax professional for more specific scenarios.
- Click here to view the retirement plan deduction limits for 2019‡
- Click here to view the retirement plan deduction limits for 2020‡
Other contribution updates
Increased contribution limits for 401(k)s
Contributions to 401(k)s usually apply to the same calendar year they were taken out of your paycheck. The contribution limit for 2019 was $19,000, and it goes up to $19,500 in 2020. For those who are 50 or older, catch-up contributions also increased from $6,000 to $6,500. If you are able to increase your contributions, make adjustments to the percentage being withheld from your paycheck to reach the higher limit.
The new law also allows part-time workers to participate in 401(k) plans. To be eligible for this benefit, employees must have worked at least 500 hours a year for three consecutive years, or 1,000 hours in one year.
Increased contribution limits for HSAs
If you have an HSA and didn’t reach the contribution limit in 2019, you can contribute up until the July 15, 2020 tax deadline. For calendar year 2019, the contribution limit is $3,500 ($3,550 for 2020) for self-only coverage, and $7,000 ($7,100 for 2020) for family coverage. And, don’t forget, if you are 55 or older, you can contribute an extra $1,000 to your HSA each year.
As a reminder, you should try to submit HSA and FSA claims in the same year the expense incurred. Some employers offer a grace period, so check with your current employer for more information and how that may affect your claim timing.
Increased standard deduction and new tax brackets
The IRS released the new tax brackets for the 2020 tax year. The seven tax rates didn’t change from 2019 but the ranges were adjusted to account for inflation. It is important to note that the tax brackets were lowered starting in tax year 2018 as a result of the Tax Cuts and Jobs Act.
For the 2019 tax year, the standard deduction amount rises to $12,200 for single taxpayers and is up to $24,400 for married filing jointly. In order to make itemizing deductions worthwhile, make sure your deductions are greater than the standard deduction you are entitled to.
Events like the SECURE Act and the impacts of COVID-19 are impacting finacnial plan across the U.S. Be sure to review your financial plan and consider how these tax changes and events directly effect you. Other tax deadlines and changes should be noted now—both to prepare for your 2019 tax filing and to understand how the changes can impact your 2020 tax filing next year.
If you’re unclear about what these updates mean for you, reach out to your financial and tax professionals for guidance.
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