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Advisors of Horizon are Registered Representatives of Cetera Advisors LLC, a broker/dealer and Registered Investment Adviser.

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Dec 3, 2019

In this episode of Inside the Plan with the 401(k) Brothers, Bill Bush and Andy Bush, advisors at Horizon Financial Group, discuss the pre-2001 Tax Act changes regarding 401(k) plans, new contribution rates for 2020, as well as the rates for simple IRAs, IRAs, and Roth IRAs, and benefits you receive if you turn 50 during 2020.

 

Episode Highlights:

 

  • 0:37 – Bill Bush and Andy Bush reflect on the first episode of this podcast.
  • 1:17 – What are the differences between the pre-2001 Tax Act and now regarding 401(k) plans?
  • 1:48 – Is maxing out 6% or is that a different amount?
  • 2:38 – What is the new contribution rate into a 401(k)?
  • 3:46 – What are you eligible for if you turn 50 in 2020?
  • 4:48 – What are simple IRAs and the contribution matches?
  • 7:08 – What do you need to keep in mind for IRAs?
  • 10:05 – What has changed regarding Roth IRAs?

 

3 Key Points:

 

  1.  The contributions rate into a 401(k) in 2020 has been raised to $19,500 for any participant that has earned that amount.
  2. If you turn 50 in 2020, you can contribute up to $26,000.
  3. With simple IRAs, for companies with no more than 100 employees, employees can put in $13,500 for 2020.

 

Are you considered “covered” by a Company Retirement Plan?

 

From the IRS website:

 

You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:

  • Defined contribution plan (profit-sharing, 401(k), stock bonus and money purchase pension plan) and any contributions or forfeitures were allocated to your account for the plan year ending with or within the tax year;
  • IRA-based plan (SEP, SARSEP or SIMPLE IRA plan) and you had an amount contributed to your IRA for the plan year that ends with or within the tax year; or
  • Defined benefit plan (pension plan that pays a retirement benefit spelled out in the plan) and you are eligible to participate for the plan year ending with or within the tax year.

Box 13 on the Form W-2 you receive from your employer should contain a check in the “Retirement plan” box if you are covered. If you are still not certain, check with your (or your spouse’s) employer.

The limits on the amount you can deduct don’t affect the amount you can contribute. However, you can never deduct more than you actually contribute.

 

Additional Resources:

 

 

Tweetable Quotes:

 

  • “The pre-2001 tax act, that you were maxed out at 15% of your income in a 401(k). There are still a lot of people that say, ‘How much can I do, 15%?’ And that is not the case.” – Andy Bush.
  • “How much are you maxing out? ‘Well, I am doing the 6%. Well, what they are talking about is, they are actually maxing out the employer match, and so those are different numbers.” – Bill Bush.
  • “If you turn 50 in the year 2020, no matter when you turn 50, you can go ahead and plan at the beginning of the year to do the catch-up contribution, which is $6500. It used to be $6000 for 2019.” – Andy Bush.

 

 

Resources Mentioned:

 

 

 

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