’Tis the season for the U.S. Internal Revenue Service to make its annual inflation adjustments to a variety of tax rates and limits, including higher estate and gift tax limits for 2020. In the coming year, individuals will be able to gift or exclude from federal estate taxes a total of $11.58 million—up from $11.4 million in 2019. The annual gift tax exclusion—the amount you can give to heirs each year without reporting a gift—remains at $15,000.
The IRS also lifted the annual limit that can be contributed to a defined contribution (401(k) or similar) plan from $19,000 to $19,500, and people 50 or older can make catch-up additional contributions of $6,500—up from 2019’s $6,000. The amount you can contribute to an Individual Retirement Account is unchanged at $6,000, with a $1,000 catchup limit for people 50 and older.
If an employer allows after-tax contributions, or if you’re self-employed, the overall defined contribution plan limit was raised from $56,000 to $57,000.
The IRS also changed the tax brackets for working Americans, raising slightly the thresholds for the 10%, 12%, 22%, 24%, 32%, 35% and 37% rates. The IRS also raised the standard deduction to $12,400 for singles (and married individuals filing separately), $18,650 for heads of households and $24,800 for married people filing jointly in 2020.
This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.