Did You Know…?

by Jessica Goedtel, CFP®, Assistant Vice President / Financial Advisor
The IRS has just released their 2020 contribution and benefit limits. Here’s what you need to know:

  • The maximum 401(k) contribution has increased to $19,500, from $19,000. Catch-up contributions for those age 50 and older have also been increased to $6,500 (from $6,000 in 2018 & 2019).
  • The annual IRA contribution amount has not been increased and remains at $6,000 (plus $1,000 for catch-up contributions).

The income brackets for IRA and Roth IRA contributions have also been updated for the 2020 tax year; more information can be found on the official IRS press release at irs.gov.

This is a great time to review your current retirement savings strategies to make sure you are taking full advantage of your tax deferral options.

Did You Know…?

by Elizabeth Wilson CPA, Vice President – Finance & Tax Services
The October 15 deadline for filing your 2018 tax return is quickly approaching. If you filed a six-month extension request by April 15, then your final return as well as any additional amount owed to the IRS is due. Here are some things to keep in mind between now and then.

  • An extension to file your return does not also extend the amount of time you are given to pay your tax liability. Taxpayers with payments due when filing after the April 15th deadline should expect to pay both a late filing penalty and interest. If you are due a refund, there is good news – the late filing penalty is eliminated. For more information on how the IRS calculates penalties and interest, see the IRS website Tax Topics.
  • If you can’t pay what you owe the IRS in one lump sum, you may qualify for alternative payment options. For example, if you owe less than $50,000 you most likely qualify to apply for an installment agreement which gives you an extended period of time to meet your tax obligations. Refer to the IRS Newsroom for more information.
  • Self-employed individuals that have extended their return have until October 15 to fund their retirement plans. The IRS provides information on the various types of retirement plan options for self-employed individuals at IRS.gov.

As we approach the close of the 2018 tax year, it is good time to contact your financial advisor and/or tax professional to discuss tax planning for 2019. Keep in mind that Q4 2019 estimated payments are due by January 15, 2020.

Did You Know…?

People with a financial adviser say they aren’t just better with money – they’re happier with life overall. We think so, of course, but don’t take our word for it… read (and share) this Business Insider article covering the results of a Northwestern Mutual survey. READ MORE

Have you met all of our Financial Advisors? Get to know some of the senior professionals on our team: http://www.valleynationalgroup.com/advisors

Did You Know…?

by Mae Gerhart, CPA – Tax Accountant / Financial Planning Professional
When you leave a job, you can often leave your 401(k) in your prior employer’s plan. Some 401(k) plans require immediate distributions if the balance is $5,000 or less.

If you receive a distribution check from your 401(k) there may be significant tax consequences, such as including it in income and an additional 10% early withdrawal penalty! One way to avoid this penalty is to perform a direct IRA rollover which transfers the money directly from your 401(k) to an IRA.

Some benefits of a self-directed IRA rollover include:

  • Such a transfer can be accomplished tax-free
  • You can increase the investment flexibility and choices in your Rollover IRA
  • A rollover IRA gives you the most distribution features and flexibility in retirement

Distributions from IRAs may qualify for an exception to a 10% early withdrawal penalty before age 59 ½ if used for a first-time home purchase ($10,000 lifetime maximum), qualified higher education expenses for yourself, your spouse, child, or grandchild, or for health insurance premiums for certain unemployed individuals. But it’s all in the name–these exceptions do not work if the money was pulled out of a 401(k)!

It doesn’t always make sense to rollover your 401(k) to an IRA. For example, if you are separating from service in or after the year you reach 55 (50 for qualified public safety employees) or if you hold employer stock in your 401(k), there might be other strategies available.

Please reach out to your financial advisor to help you determine the best course of action for your 401(k) at an old employer.

RELATED ARTICLE: Switching jobs? Don’t make these mistakes with your retirement plan (cnbc.com)

Did You Know…?

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Did You Know…?

by Frank Stettner, CPA, CFP ®, Senior Vice President
New Jersey allows seniors who are 62 or older to exclude all or part of their pension income, plus other income, from their state income tax return. This exclusion is going up between 2017 and 2020 as long as your gross income – not taxable income – is not more than $100,000. The exclusion was $40,000 in 2017, $60,000 in 2018 and is $80,000 in 2019. In 2020, it reaches $100,000. If your gross income is one dollar more than $100,000, you get zero pension exclusion. It is not phased out – it is simply gone .The instructions for calculating the “Pension Exclusion and Other Retirement Income Exclusion” state that the $100,000 limit is based on line 26, Total Income.

So what income is not included on line 26? There are three types of income that don’t show up: Social Security benefits, New Jersey municipal bond interest and federal government bond interest. Everything else is included as income on your New Jersey tax return.

If you are close to the $100,000 threshold, is there any way you can reduce your gross income to come in below the allowable amount? If you have interest income, consider putting some money in New Jersey municipal bonds. If you have dividend income, consider moving some money into non dividend paying stocks or mutual funds. Evaluate this with your advisor to see if it makes sense for you.

Did You Know…?

Was your 2018 tax refund not as large as you were originally anticipating, or did you end up owing? With the changes from the 2016 Tax Cuts and Jobs Act, the IRS is still trying to perfect the Form W-4 for the proper amount of tax withholding. 

If you are expecting any life changes this year — marital status, number of dependents, or a substantial change in income or deductions — contact us so we can help you avoid the surprise next year.

READ MORE: The IRS releases its new tax withholding form. Here’s what you need to know.