retirement Taxes

What are the IRA Contribution Limits for 2019 and 2020?

There are some stark differences between Roth IRAs, Traditional IRA, and other retirement plans, like workplace 401(k)s. Some of those differences come about through contribution limits, ages where you must draw RMDs (Required Minimum Distributions), and the age you are no longer allowed to make contributions to your account. 

Ronald asks, “Mike, hope you’re doing well. I had a quick question about my Traditional IRA and what age I can no longer make contributions to it and how much I can currently contribute to it. I’m trying to make up for lost time because I just recently got a good job and I never really made contributions before.

I’m currently 53 years old and I plan on retiring between ages 62-65. Thanks for any answers you can give me.”

Ronald, thank you for writing. Some background for anyone wondering; a Traditional IRA allows pre-tax contributions (you get a tax deduction for contributing to one).

Because of this, Congress and the IRS put limitations on how much you can contribute, how much can be deducted from your other income for tax purposes, and other restrictions. 

For starters, your Traditional IRA has a contribution limit of $6,000 for tax years 2019 and 2020. However, anyone age 50 and older is allowed a “catch-up” contribution of $1,000, meaning you have a contribution limit allowed of $7,000.

It should be noted that Roth IRAs have the same contribution limits as Traditional IRAs, however they grow tax-free instead of the contributions being deductible.

Make sure you sit down with an advisor, Ronald, and discuss your retirement options. You should look at how much you need to save into your Traditional IRA, 401(k), and any other non-qualified accounts to reach your retirement goals. 

You need to see tax consequences for different scenarios, especially if you plan on starting to draw Social Security at age 62 as opposed to putting it off longer.


To have your question featured, please leave a comment below.

This article is not intended to be financial, legal, or tax advice. For help regarding your specific situation, please consult a local advisor.

retirement Taxes

“What Are the New Rules for IRAs in 2019?”

You know the routine; you make money, you save money. And so many of us are using tax-advantaged vehicles like Traditional IRAs and Roth IRAs in addition to your workplace retirement plans. 

It’s great that there’s vehicles that incentivize retirement savings, but just know what the government gives with one hand, they take with the other, as we’ll be diving in and exploring here.

Brett writes in: “Hi Mike, thank you for what you do. I’m sure you’ve been reading the news about the IRA rules and I was wondering if you could explain to me what is happening and if this will affect the money I have in my Roth IRA. Thanks!”

Great question, Brett. Nothing has been put into place yet, although these new bills regarding Traditional IRAs seem likely to pass. As it is, if anyone other than a spouse inherits a Traditional IRA, they must take distributions from it, but they can stretch the payments over their lifetime using the IRS’ actuary tables. This is termed a ‘stretch IRA.’

Under the proposed rules, if this same event were to happen, the beneficiary would be forced to liquidate the IRA over a period of 10 years instead of their lifetime, greatly increasing the tax burden of every payment and possibly pushing the beneficiary into a higher tax bracket until the IRA is liquidated.

Another proposal is to increase the RMD age (the age where you are required to take Required Minimum Distributions) from 70 ½ to 72. This proposal is actually more beneficial to the taxpayer than the current rules. Again, where the government gives with one hand, they take with the other. 

Now, Brett, this information is important to people with Traditional IRAs. You, however, have a Roth IRA and have already paid taxes on it when you put money into it, so the government is less concerned with regulations on the back-end. 

Required Minimum Distributions do not apply to Roth IRAs, however, beneficiaries are required to take a minimum amount every year, so the new rules regarding stretch IRAs may apply to Roth IRAs as well. We will just have to wait and see for that.

I hope that clears that up a little bit and thank you for writing in, Brett.


To have your question featured, leave a comment below.

This article is not intended to be legal, tax, or financial advice. For help regarding your specific situation, please consult a local advisor.

retirement Social Security

“Are My Social Security Benefits Taxable?”

We all look forward to that age when we finally start collecting our social security benefits. That’s when it finally pays off to have paid in for all the years before. We often get questions about social security, specifically how to handle tax when it comes to social security benefits.

Joanne writes in: “Hi, I had a quick question about my social security payments and if I have to pay tax on them. I get about $1,300 a month. Does the amount I receive affect how much I pay in taxes, if I have to pay taxes at all? I just started receiving payments. Thank you.”

Joanne, great question. Social security is taxable, but we have to put a huge asterisk on that. And the reason we have to do that is because the amount that is taxable depends. Depends on what, you ask?

The amount of social security payments that are taxable depends on the amount of your other income, including tax-exempt interest (muni bonds).

The taxable portion of total social security payments is based on a formula, and the variables in that formula are based on other variables, like your filing status for tax purposes.

In 2019, if your filing status is Married Filing Jointly, then the formula goes like this (Taxable portion of your social security payments = (Gross Income (not including social security payments) + half of your total social security benefits (including both spouses’)) – $32,000). For all other filing statuses, replace the number $32,000 with $25,000, unless you are Married Filing Separately and lived with your spouse at any point during the year, then replace $32,000 with $0.

However, social security benefits are never more than 85% taxable. So if the number above is more than 85% of total benefits, then only 85% of your benefits are taxable.

So another example, Joanne, is if you receive $1,300 a month ($15,600/year), and have wages of $45,000 and file as Single, then your formula would look like this:

($45,000 + $7,800) – $25,000 = $27,800

Note that $27,800 is more than 85% of your total annual social security benefits, so the alternative formula would be:

$15,600 * 85% = $13,260

In this scenario, 85% of your social security benefits are taxable.

I hope reviewing this helped, Joanne.


To have your question featured, please leave a comment below.

This article is not intended to be legal, tax, or financial advice. For help regarding your specific situation, please consult a local advisor.

Annuities retirement Uncategorized

“What is a Fixed-Index Annuity?”

Planning for retirement can be a minefield, especially when so many different financial professionals are giving different advice. And it may be that each one is giving valid advice, but you still want to know who is giving the best advice. And where we come in is not as advice, but as information so that you can make the best choice knowing all of your options and how each option works.

Ed writes in: “Hi, I’ve been following the blog for a while and I’ve recently been meeting with a financial advisor. She’s been talking to me about something called a fixed index annuity. She tells me there’s guarantees and the product cannot lose value, but it will still grow because it’s tied to the performance of the market. Curious to know your opinion. Thanks for the help.”

Thanks for writing in, Ed. She’s not wrong. A fixed-index annuity generally won’t lose value and some even guarantee a minimum return (maybe 0-3%) even when the market goes down. They’re relatively conservative vehicles for retirement. That being said, their performance is tied to the stock market, as their name suggests, a market index.

In return for guaranteeing a minimum return on your money, the insurance company will generally cap the returns of the annuity so the annual growth will not go above a certain amount (maybe 3-4%). 

The insurance company does not mind giving you guarantees in this because when the market goes up (which is does more often than it goes down, historically), the insurance company keeps the growth on your money beyond the cap. Over a medium to long time horizon, the insurance company wins by a landslide. 

That being said, they’re not the worst products and generally they don’t carry any fees (the implicit “fee” is the insurance company keeping your excess gains). If you are overly conservative by nature, have a mild heart attack when any of your investments take a small dip, or have a short time horizon from the time that you purchase the annuity, this may be a great option for you.

Make sure to explore other options also, though, such as fixed and variable annuities and see if these are more suited to you. Review prospectuses carefully and with a professional.

We hope this helped explain this option a little better and thank you for taking the time to write, Ed. 


To have your question featured, leave it in a comment below.

This article does not constitute legal, financial, or tax advice. For help regarding your situation, please consult your local tax advisor.

Annuities retirement

When Should I Use a Fixed Annuity?

Before talking about when it is appropriate to use a certain financial tool, we should discuss what it is and how it works. Anthony writes in, “When should I use a fixed annuity for retirement?”

Thanks for writing, Anthony. See, a fixed annuity is a tool that one might consider for retirement when they want guaranteed payments growing or paying out at a certain rate. The term ‘fixed’ here means the account grows at a fixed interest rate and is therefore not subject to investment risk or fluctuations with the market.

As you might have guessed, this type of account is primarily useful for a person who is especially conservative (risk-averse) and cannot bear to see their hard-earned money fluctuate in their account.


So When Should You Use a Fixed Annuity?

For some people, the answer to this question may be “never.” It really depends on your time horizon for the investments in a given account and your tolerance to bear risk.

While annuities are a particularly useful tool for retirement planning, your investment objectives and financial goals will determine what tools you use.

Something to consider, however, is that utilizing any kind of fixed account will have its benefits and its drawbacks. For instance, it is not uncommon for fixed accounts to grow at a guaranteed rate of 2-3% a year. Considering this is guaranteed, many people may like the idea of a risk-free account that grows at many times what a savings account at a bank may grow at.

However, it is important to consider the opportunity costs with a fixed annuity. First, there is the fact that the fixed annuity may struggle to even keep up with inflation.With inflation averaging greater than 3% a year, a fixed account may not be the greatest option for accumulating wealth for a younger person with a long time horizon and the ability to withstand short-term market losses.

The second important factor to consider is that a diversified variable annuity account may average 6-7% annually. This kind of allocation would allow a person to absorb the 3% inflation rate and realize a real 3-4% increase in their money annually. And if the person is retired, it allows them to draw the 3-4% of their account value annually without drawing down the value, theoretically allowing the account to last in perpetuity.

It is important to consider what your objectives are and to discuss your goals with a professional before making any kind of long-term decisions like retirement planning.

But what do you think? What kind of tools have you utilized for retirement and how has it fared for you?


The information in this article does not constitute legal, financial, or tax advice. For help determining what tools to use in retirement, please contact a local retirement professional.

finance retirement

What Is a Qualified Retirement Plan?

The Federal government has outlined what are referred to as “Qualified” plans, meaning they are earmarked for retirement. Everyone has access to a Traditional IRA, most people have access to a Roth IRA, and depending on who you work for, you may have access to a 401(k), a 403(b), or a 457. We will touch on each of those options in a future post.

But what happens if you don’t work for anyone and you feel like you’ve lost out on potential tax savings because of the low contribution limits on IRAs? After all, the contribution limit for employer-sponsored plans for most people is $18,500 annually and the contribution limit for Traditional and Roth IRAs is $5,500 annually for most people.

If you are self-employed, IRS publications outline different options for you. There are a few easy to implement and cheaper options in the form of a SEP plan and a SIMPLE plan.

We will go over the specifics of each of these plans in future updates, but here we will specifically be discussing what these plans all have in common.

These plans are all meant for retirement and are often implemented by financial institutions such as banks, insurance companies, or brokerage firms.

When Can I Draw Money Out of the Accounts?

All of the accounts have a stipulation that you cannot begin drawing money out in the form of distributions until age 59 ½. If you are to take money out early, you will incur not only normal income tax payments but also a 10% penalty on the money that is withdrawn.

Why Would I Put Money Into One of These Plans?

Qualified plans are tax-favored, meaning that the money put in is either exempt from tax when it is contributed into the plan or distributed from it, but not both. Traditional plans provide for tax savings upfront, but are tax-deferred, meaning they are taxed as ordinary income when distributed.

Roth plans are taxed upfront in the year contributed, however they allow for tax-free growth.

So Should I Save Into Roth Plans or Traditional Plans?

It may depend on what is available to you and what strategy you are pursuing. Employer-sponsored plans allow for greater contribution rates but it may be harder to find an employer that sponsors a Roth 401(k), 403(b), or 457.

Because of this, you may want to pursue a mixed strategy where you save into a Roth IRA outside of your employer and then save into a pre-tax account with your employer.

Why Would I Save Into One Plan Over the Other?

If you believe you will be in a lower tax bracket when you retire, then it will be wisest to put money into a pre-tax account where you get the tax break upfront when your tax bracket is higher.

If you think your tax bracket will be higher when you retire, you will be better off saving into Roth plans where you can get the growth of your contributions tax free when you would otherwise have to pay more on earned income.


This article does not constitute financial advice. For information regarding your specific situation, please consult your local financial advisor.