By Brad Sanders, CFP®, CRPC®

Recent news indicates the deadline for filing your 2020 tax return is still going to be April 15, 2021 (last year, the deadline was extended by three months due to the pandemic). That being said, plan accordingly for your 2020 Traditional or Roth IRA contributions well in advance of the deadline.

The annual contribution limits remain the same for 2020 as 2019. Taxpayers age 49 and younger with earned income can contribute $6,000, while taxpayers 50 and over can contribute $7,000. Keep in mind that certain income limitations exist for direct funding to Roth IRAs, while Traditional IRA contribution deductions can be affected by both income level and retirement plan participation status.

Be sure to confirm with your tax professional how these rules apply to your individual situation. We invite you to contact your advisor at Stonebridge Financial Group as well to see if your plan dictates funding one of these accounts.

Traditional IRAs and Roth IRAs both offer significant tax benefits, although it is important to understand some of the biggest differences between them. A Traditional IRA contains pre-tax dollars that can potentially lower your taxable income, grow tax-deferred, and then distribute taxable income in the future. A Roth IRA contains after-tax dollars that grow tax-deferred and then potentially distribute tax-free income, subject to certain stipulations.

The SECURE Act from late 2019 introduced substantial changes to IRAs:

– Going forward, people with earned income can contribute to Traditional IRAs past age 70. The age dictating Required Minimum Distributions that need to be taken from Traditional IRAs has been raised from 70 to 72 years.

– The ability to make charitable distributions from Traditional IRAs is still available to people age 70 and older, which continues to present a beneficial planning opportunity.

– The ability for a non-spouse beneficiary to “stretch” inherited IRA distributions for their lifetime has been amended, so now, these IRA account recipients are required to distribute all of the funds within ten years.

Having an informed discussion about Traditional and Roth IRAs and the many available planning strategies is one of the benefits of having a relationship with a financial advisor. In addition to looking at investment strategies, clients can benefit from an experienced professional who is well-versed in the tax and estate planning implications of different retirement accounts. You can learn more about these services and contact us with any questions.

Brad SandersBrad Sanders has been a lifelong resident of Central PA. He began in the financial services industry in 2007. Prior to that, he attended St. Vincent College in Latrobe, PA where he was also a member of the baseball team. He earned his Certified Financial Planner® certification in 2012 and his Chartered Retirement Planning Counselor® designation in 2013.