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IRS Announces Higher 2020 Retirement Plan Contribution Limits For 401(k)s And More

How much can you save for retirement in 2020? The Treasury Department has announced inflation-adjusted figures for retirement account savings for 2020: 401(k) contribution limits are up; traditional IRA contribution limits stay the same; almost all the other numbers are up.

The amount you can contribute to your 401(k) or similar workplace retirement plan goes up from $19,000 in 2019 to $19,500 in 2020. The 401(k) catch-up contribution limit—if you’re 50 or older in 2020—will be $6,500 for workplace plans, up from $6,000. But the amount you can contribute to an Individual Retirement Account stays the same for 2020: $6,000, with a $1,000 catch-up limit if you’re 50 or older.

So super-savers age 50-plus can sock away $33,000 in these tax-advantaged accounts for 2020. If your employer allows aftertax contributions or you’re self-employed, you can save even more. The overall defined contribution plan limit moves up to $57,000, from $56,000.

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Sounds unreachable? During 2018, 13% of employees with retirement plans at work saved the then maximum of $18,500/$24,500, according to Vanguard’s How America Saves. In plans offering catch-up contributions, 15% of those age 50 or older took advantage of the extra savings opportunity. High earners are really saving: 6 out of 10 folks earning $150,000+ contributed the maximum allowed, including catch-ups.

Want to join in? We outline the numbers below; see IRS Notice 2019-59 for technical guidance. For more on 2020 tax numbers: Forbes contributor Kelly Phillips Erb has all the details on 2020 tax brackets, standard deduction amounts and more. We have all the details on the new higher 2020 retirement account limits too.

401(k)s. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is $19,500 for 2020—a $500 boost over 2019. Note, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.

The 401(k) Catch-Up. The catch-up contribution limit for employees age 50 or older in these plans is $6,500 for 2020. That’s the first increase since 2015 when the limit rose to $6,000. Even if you don’t turn 50 until December 31, 2020, you can make the additional $6,500 catch-up contribution for the year.

SEP IRAs and Solo 401(k)s. For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) goes up from $56,000 in 2019 to $57,000 in 2020. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also goes up from $280,000 in 2019 to $285,000 in 2020.

Aftertax 401(k) contributions. If your employer allows aftertax contributions to your 401(k), you also get the advantage of the $57,000 limit for 2020. It’s an overall cap, including your $19,500 (pretax or Roth in any combination) salary deferrals plus any employer contributions (but not catch-up contributions).

The SIMPLE. The limit on SIMPLE retirement accounts goes up from $13,000 in 2019 to $13,500 in 2020. The SIMPLE catch-up limit is still $3,000.

Defined Benefit Plans. The limitation on the annual benefit of a defined benefit plan goes up from $225,000 in 2019 to $230,000 in 2020. These are powerful pension plans (an individual version of the kind that used to be more common in the corporate world before 401(k)s took over) for high-earning self-employed folks.

Individual Retirement Accounts. The limit on annual contributions to an Individual Retirement Account (pretax or Roth or a combination) remains at $6,000 for 2020, the same as in 2019. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000. (Remember that 2020 IRA contributions can be made until April 15, 2021.)

Deductible IRA Phase-Outs. You can earn a little more in 2020 and get to deduct your contributions to a traditional pretax IRA. Note: Even if you earn too much to get a deduction for contributing to an IRA, you can still contribute—it’s just nondeductible.

In 2020, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $65,000 and $75,000, up from $64,000 and $74,000 in 2019. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $104,000 to $124,000 for 2020, up from $103,000 to $123,000.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000 in 2020, up from $193,000 and $203,000 in 2019.

Roth IRA Phase-Outs. The inflation adjustment helps Roth IRA savers too. In 2020, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $196,000 to $206,000 for married couples filing jointly, up from $193,000 to $203,000 in 2019. For singles and heads of household, the income phase-out range is $124,000 to $139,000, up from $122,000 to $137,000 in 2019.

If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions. To learn more about the backdoor Roth, see Congress Blesses Roth IRAs For Everyone, Even The Well-Paid.

Saver’s Credit. The income limit for the saver’s credit for low- and moderate-income workers is $65,000 for married couples filing jointly for 2020, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married filing separately, up from $32,000. See Grab The Saver’s Credit for details on how it can pay off.

QLACs. The dollar limit on the amount of your IRA or 401(k) you can invest in a qualified longevity annuity contract is increased to $135,000 from $130,000. See Make Your Retirement Money Last For Life for how QLACs work.

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I’m an associate editor on the Money team at Forbes based in Fairfield County, Connecticut, leading Forbes’ retirement coverage. I manage contributors who cover retirement and wealth management. Since I joined Forbes in 1997, my favorite stories have been on how people fuel their passions (historic preservation, open space, art, for example) by exploiting the tax code. I also get into the nitty-gritty of retirement account rules, estate planning and strategic charitable giving. My favorite Forbes business trip: to Plano, Ill. to report on the restoration of Ludwig Mies van der Rohe’s Farnsworth House, then owned by a British baron. Live well. Follow me on Twitter: http://www.twitter.com/ashleaebeling Send me an email: aebeling@forbes.com

Source: IRS Announces Higher 2020 Retirement Plan Contribution Limits For 401(k)s And More

The IRS announced changes to contribution and benefit limits for 2019. CSIG’s Alison Bettonville, CFA highlights the limit changes that affect various qualified retirement plans. Highlights include: -402(g) limit increased to $19,000 -415 or the Total Annual Additions limit increased to $56,000 -Catch up contributions limit remained at $6,000 -Compensation limit increased $280,000 -Highly Compensated Employee definition increased to $125,000 To the extent that any portion of the information submitted by CSIG contains material that is copyrighted, the recipient shall observe the protection of such material as provided under applicable copyright laws. Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate risk of loss. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. International investing involves a greater degree of risk and increased volatility. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends.

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Fintech Firm Solves Number One Retirement Fear—Outliving Your Money

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Ken Henderson, a traveling Pickleball pro, has taped out two 22-by-40-foot courts on an East Harlem gym floor. Today, instead of the usual Florida retirees, he’s teaching a crew of youngish engineers, Web designers and financial planners who have taken the subway up from the Chelsea offices of their fintech startup to play the paddle sport many Baby Boomers favor because it requires less running than tennis and is easier on aging joints. One of the older players today is 41-year-old Rhian Horgan, the founder and CEO of Kindur. She has arranged the outing as a tongue-in-cheek way for her staff to get in touch with their inner Boomers—and their clientele.

In 2016, after 17 years with JPMorgan, Horgan ditched her business suits for jeans and reinvented herself as a fintech entrepreneur. She pitched Kindur as a one-stop digital financial advisor for those nearing or in retirement. It would manage clients’ investment portfolios using a basket of low-cost index ETFs (from Vanguard, BlackRock and Schwab); offer them advice on when to take Social Security; determine which of their retirement accounts to draw down first; and, in many cases, sell them a fixed annuity­—all with the goal of making sure they didn’t run out of money or pay more taxes than necessary during retirement. For simplicity, Kindur would even consolidate a client’s income sources into a monthly “retirement paycheck.”

But venture capitalists who have thrown hundreds of millions at a slew of robo-advisors and personal finance apps targeting Millennials were not wowed by Horgan or her pitchbook. “There was nothing in their portfolio targeting people ages 55 to 70,” she says. “It was a demographic they didn’t understand.”

Adding to her problems, Horgan believes, was her own identity. “I wasn’t viewed as investable. I was old for the industry, almost 40, didn’t have a cofounder, and I worked [previously] for a bank.” In addition, the notion of selling annuities online without high-pressure commissioned salesmen has been met with wide skepticism—from VCs and especially within the insurance industry itself.

After months of fruitlessly knocking on U.S. doors, Horgan found a believer at a fintech retreat in the French Alps. Anthemis, a London-based VC firm that was in on the first 2010 funding round of Betterment—the largest of the independent robo-advisors—agreed to lead a $1.25 million seed funding in September 2017, with billionaire Steve Cohen’s Point72 Ventures chipping in. Why mess with Boomers? “That’s where the money is,” answers Anthemis cofounder Sean Park, who sits on Kindur’s board.

Horgan hired an engineer, a designer, a general counsel (from Citi) and a few fellow financial wonks. They set up shop in a WeWork office. Across the hall, a sixtysomething woman was using WeWork’s online Meetup service to organize mah-jongg games, which gave them encouragement whenever naysayers suggested Boomers just weren’t that into the internet.

Still, their challenge was daunting: designing a “decumulation” or spend-down plan is more complicated (and requires more individualization and sets of calculations) than determining a proper asset allocation in the accumulation or saving phase. Yet to retain a broad appeal, the look and feel of the site couldn’t be too wonky, they believed.

The result: Kindur’s site, which launched in April, takes a low-key approach to both the details and the sales pitch. After setting up a free account, you answer a handful of specific questions (age, recent salary, planned retirement date) and guesstimate your assets and current spending. You get a preliminary free plan providing spending, Social Security and other advice based on these guesstimates or by linking to your actual accounts.

Prospective customers can play with their assumptions (retire later? spend less?) and ask questions of Kindur’s “coaches” via phone or online chat. Turns out, Boomers love chatting online and half use Kindur’s smartphone app, instead of its website, Horgan reports.

So far, more than 1,000 potential clients have gotten free plans. It’s a slow sales process, so we don’t yet know how many of them will buy Kindur’s services. But those who do will transfer their IRAs and investment accounts to its platform (custodied by Apex Clearing) and be charged an annual management fee of 0.5% of investment assets.

One of the most closely watched parts of Horgan’s approach is her use of fixed annuities to ensure clients don’t outlive their money. In contrast to the complicated (and commission-heavy) variable annuities insurance salesmen pitch, these are relatively plain vanilla products: You hand over a lump of money—say, $100,000—and get a fixed monthly income beginning either now or at some date in the future. Some financial planners and policymakers argue fixed annuities are a good idea, particularly for those middle-class folks who have savings but no regular pensions (outside of Social Security) they can count on.

Not surprisingly, annuity sellers are aggressively pursuing the Boomers’ business. In fact, the Alliance for Lifetime Income, an industry group, is the sole sponsor of the Rolling Stones’ current concert tour—the one that was delayed by Mick Jagger’s heart surgery.

But the insurance industry is still resistant to selling annuities online. Complicating matters, Horgan wanted a custom-designed product that fit her vision of a good annuity. She interviewed more than 40 insurers to find one willing to work with her and finally teamed up with American Equity, a West Des Moines, Iowa-based $51 billion in assets company started just 24 years ago.

“We’re partnering with Kindur because it’s a distribution channel of the future,’’ says Ron Grensteiner, the president of American Equity Investment Life Insurance Co. “There’s a segment of the population now, and there will be even more so in the future, who want to do retirement planning digitally—and anonymously, to a certain degree.”

Horgan resolved to start Kindur after watching her own parents struggle to make sense of their retirement options. Her physician father and piano-teacher mother immigrated from Ireland when she was 9. Her dad worked at six different U.S. hospitals, accumulating six workplace retirement plans, as well as sundry other financial assets. Her mom, who died in late 2017, had two retirement accounts. “The list of accounts went on and on. They never had a financial advisor, and most of the info was in my dad’s head,’’ says Horgan, who has decorated Kindur’s offices with framed photos of parents—her own and those of her staff.

Before taking the Kindur site live, she raised another $10 million, including $1 million from Inspired Capital, a new fund run by billionaire Penny Pritzker and Alexa von Tobel, who founded Learnvest, a financial site for Millennial women. (It was acquired by Northwestern Mutual and later ended as a brand.) “She’s extremely ahead of the competition in recognizing what an opportunity this is,” says Von Tobel.

Not quite all the competition. United Income, a similar comprehensive online service aiming at the 50-to-70-year-old getting-organized-for-retirement crowd launched in September 2017 and already has $780 million in assets under management, with an average account size of $833,000. Unlike Horgan, founder Matt Fellowes didn’t have to fight the VCs’ anti-Boomer bias—he used his own and his family’s money, plus funds from Morningstar, which backed his first fintech startup, Hello Wallet, an automated budgeting and financial education tool aimed at Millennials.

United Income is a bit pricier. It charges 0.5% of assets a year for robo-only management and 0.8% for a “concierge service” with access to a personal financial advisor. And it doesn’t recommend annuities. Why not? Fellowes says fewer than 10% of his customers face an “essentials gap”—meaning their basic living expenses aren’t covered by Social Security and pensions—and he views bond ladders and other low-risk investment strategies as a more cost-effective method than annuities to fill such a gap.

How big a role annuities will ultimately play in Boomer retirements is still unclear.

What is clear, however, is that digital money management is not just for Millennials anymore.

In fact, the bigger challenge for Kindur, United Income and the inevitable similar startups to come may be that Boomers will simply opt to get their robo-advice from the established financial companies that helped them build their nest eggs in the first place.

Charles Schwab & Co.’s robo-human hybrid advice service, Schwab Intelligent Portfolios Premium, launched in 2017. It includes spend-down advice and costs just $300 up front, plus $30 a month. So far, two thirds of users are 50 or older.

And then there’s the blue whale of robo-human hybrids: Vanguard’s Personal Advisor Services, which launched in 2015 and charges 0.30% of assets (and less for those with $5 million or more under management).

 The Vanguard service not only allocates clients’ investments, but also offers advice on claiming Social Security and how much (and from which accounts) clients should spend in retirement. So far, 85% of Personal Advisor’s users are 50 or older, and it has grown to $130 billion in assets under management—way more than all the robo startups combined, no matter what age clients they serve.

I’m an associate editor on the Money team at Forbes based in Fairfield County, Connecticut, leading Forbes’ retirement coverage. I manage contributors who cover retirement and wealth management. Since I joined Forbes in 1997, my favorite stories have been on how people fuel their passions (historic preservation, open space, art, for example) by exploiting the tax code. I also get into the nitty-gritty of retirement account rules, estate planning and strategic charitable giving. My favorite Forbes business trip: to Plano, Ill. to report on the restoration of Ludwig Mies van der Rohe’s Farnsworth House, then owned by a British baron. Live well. Follow me on Twitter: http://www.twitter.com/ashleaebeling Send me an email: aebeling@forbes.com

Source: Fintech Firm Solves Number One Retirement Fear

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