ATLANTA - We are continuing our look ahead to the tax filing deadline of April 15th. Let's jot down three tips for making tax time less taxing.
The good news is that you can put more money in your 401(k) and the standard deduction has been adjusted for inflation. But let's start here with retirement distribution for 2020.
This is a two-parter: In 2019 the required minimum distribution age was 70.5 years old. In 2020 that is 72 years of age. More years for your money to grow. But this the downer: If you are to inherit a retirement plan, you must withdraw the money in 10 years. There are rare exceptions, but this is basically the new rule.
According to assistant accounting professor Usha Rackliffe at Emory's Goizueta Business School, in the past, you could spread it out over the rest of your life and draw on it over time. She explains how it works now by using a $500,000 retirement inheritance as her example. She tells us how this will impact folks who plan to leave an inheritance.
"You can draw it down periodically over time which is a very good thing because the money is going to grow and you can draw it down periodically, maybe over 50 years, maybe $10,000 a year. But now, if you're going to do it over 10 years, it's going to be $50,000 a year," Rackliffe said. "Imagine that. So you can also be in a higher tax bracket. They will have to go back and rethink how it's structured, right? And to find out if that's an appropriate vehicle to give it to your grandchildren, to give it to other generations."
OK, let's get back to the good stuff. You can now contribute $500 more to your 401(k). Two great things about this are that every little bit counts when it grows over time. And, because you put it in there pre-tax, your taxable income goes down.
Finally, the standard deduction is up to $200 for individuals and $400 for married folks filing jointly. And that's a snapshot of three things to know about for 2020.