Although you’re probably focused on filing your 2019 tax return right now, it’s never too early to start thinking about next year’s return. Proper tax planning requires an awareness of what’s new and changed from last year—and there are plenty of tax law changes and updates taking effect in 2020 that you need to know about.
The government funding bills signed by President Trump in December 2019 included a lot of tax provisions. Other 2020 tweaks are the result of new rules or annual inflation adjustments. However, no matter how, when or why the changes were made, they can hurt or help your bottom line—so you need to be ready for them. To help you out, we pulled together a list of the most important tax law changes and adjustments for 2020 (some related items are grouped together). Use this information now to start your tax planning this year so you can save money next April when you file your 2020 return.
There are a lot of changes in 2020 for retirement plans, thanks to the SECURE Act, which was signed into law late in 2019. For example, the beginning age for taking required minimum distributions (RMDs) rises from 70½ to 72. (This change only applies to account owners who turn 70½ after 2019, so you still must take your first RMD by April 1, 2020, if you turned 70½ in 2019.)
The SECURE Act also allows owners of traditional IRAs to make contributions past the age of 70½ starting in 2020. In addition, folks having a baby or adopting a child can now take payouts from IRAs and 401(k)s of up to $5,000 without having to pay the 10% fine for pre-age-59½ withdrawals. Beginning in 2020, fellowships, stipends or similar payments to graduate or post-doctoral students are treated as compensation for purposes of making IRA contributions, too. This will help qualifying students begin saving for retirement sooner, since contributions to a retirement account generally can’t exceed the amount of your compensation.
The rules for withdrawing money from inherited IRAs and workplace retirement accounts are also tightened by the SECURE Act—many accounts now need to be cleaned out within 10 years of the death of the IRA owner or 401(k) participant. Exceptions allow payouts over the beneficiary’s life expectancy for surviving spouses, the disabled or chronically ill, minor children until they reach 18 and beneficiaries who are not more than 10 years younger than the account owner. (Inherited accounts of individuals who died before 2020 aren’t affected by this change.)
