What You Need to Know About Tax Changes in 2020 with David McKnight

The new year brings important changes to the IRS tax code along with various thresholds that we have to know about when it comes to Power of Zero planning. We have to be keenly aware of these thresholds because they can end up being landmines if we’re not doing things correctly.

The new income threshold for the Roth IRA is $124,000 to $139,000 for a single person and $196,000 to $206,000 for a married couple. The good thing about the Roth IRA is you have until April 15th of the following year to figure out how much you are going to contribute.

The Roth conversion is a little more difficult. You have to make the decision before you have all the information prior to Dec 31 and you can’t change it once it’s been done.

401(k)’s have changed quite a bit as well, with increased limits on contributions for both people younger and older than age 50. This applies to Roth 401(k)’s as well which is good because you should take advantage of anything with the word Roth in it. We’re marching into a financial apocalypse so it’s very important to take advantage of as many of these diversified tax-free streams of income as possible.

The standard deduction has also increased, but in 2026 we will be reverting back to the tax code of 2017, so the net result is likely to be pretty much the same.

Required minimum distributions have been pushed back by two years. This won’t really impact people who need the money as they would withdraw it either way. This can be advantageous for people who don’t need the money because they won’t be forced to realize the income in their IRA’s. However, they may be hit with higher tax rates as taxes increase in the future.

The stretch IRA has been abolished. This means that your non-spouse beneficiaries will have to spend down your IRA’s and 401(k)’s in the ten years following your death. This is another reason to move your money to tax-free so that your inheritors won’t have to pay some of the highest tax rates at the apex of their earning years.

You can now contribute to your IRA after age 70 and a half which you couldn’t before.

Gift and estate tax exemption is now at $11.8 million per individual but there is a chance that these changes may not last if a different administration takes the Senate, Congress, and White House.

These changes are largely good for people looking to implement the Power of Zero strategy but there are some questions for the IRS that can be very revealing. The fact that they haven’t adjusted the contribution limits of the Roth IRA to keep up with inflation should tell you that Roth IRA’s are good things.

The ideal approach to tax-free retirement is to take advantage of all the tax-free streams of income that are available to you because they all have benefits and merits that are unique to each bucket. They are all pieces of the Power of Zero puzzle.