Looking Ahead to 2019: What It Means for Your Retirement
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Every January brings a few changes to what retirement savers can expect in the New Year. This year is no exception, and in fact, 2019 has some significant changes in store. Here is a rundown of what you should be aware of as you plan ahead.
Tax Law Changes
The 2017 Tax Cuts and Jobs Act altered the tax landscape for both individuals and businesses. Before we get to what did change, you should know that the rules governing tax-deferred retirement accounts did not change. That is really a “no news is good news” situation for retirement savers.
As to what did change, here are some of the provisions most likely to affect individual taxpayers:
Tax Rates and Brackets: There are still seven tax brackets, but for the most part they have been lowered. The highest bracket for a married couple filing jointly with income exceeding $600,000 will be 37% (a 2.6% decrease). The same joint filers with income of $165,000 will have a 24% tax rate.
Standard Deductions: These have doubled to $12,000 for single filers; $24,000 for married/joint filers; and $18,000 for heads of household. Because the majority of middle- and low-income filers take the standard deduction, this change (combined with the higher child tax credit) is the source of most people’s tax savings under the new law.
Child and Family Tax Credit: For children younger than 17, this doubled to $2,000. In addition, the credit is available to more households. Households that earn less than $200,000 (single filer) or $400,000 (joint filers) now qualify.
Itemized Deductions: Many of these have been reduced, eliminated, or modified. Examples include:
- A $10,000 cap on the deduction for local and state income taxes, property taxes and real estate taxes.
- A $750,000 cap on mortgage interest deduction.
- All miscellaneous itemized deductions have been eliminated.
- Charitable deductions are still allowed, and the cap has been increased to 60% of adjusted gross income.
Alternative Minimum Tax: The AMT lives on, but increased exemptions (now $109,400 for married/joint filers; $70,300 for all others) and exemption phase-out thresholds ($1 million for married/joint; $500,000 for all others) should minimize its impact.
Social Security Changes
Social Security changes revolve around dates and dollars. Here is an overview:
Full retirement age: Even though you can start to collect benefits at age 62, your benefits will be reduced if you start taking payments before you reach “full retirement age.” When you reach that magic age depends on when you were born. If you were born between 1943 and 1954, you can collect 100% of your Social Security benefits at age 66. If you turned 62 in 2018 (meaning you were born in 1956), you must wait four months after your 66th birthday before collecting your full benefits. People who turn 62 in 2019 (born in 1957) have to wait an additional two months—to 66 and six months—before collecting their full benefits. This two-month increment will continue until the standard age to collect full benefits is 67. And remember, if you can delay taking any Social Security payments until age 70, your monthly benefits will be higher, depending on how long you delayed.
Cost of Living Increase: If you already collected Social Security, your benefits will increase by 2.8% in 2019. The average Social Security recipient will receive $39 more each month, providing a small cushion against inflation. You can see how much your COLA increase will be on your mySocialSecurity account online.
Earnings Limit Increase: If you have not yet reached full retirement age, and continue to work while collecting Social Security, you will be able to earn up to $17,640 in 2019 before your benefits will be reduced. That means you can earn $600 more than in 2018. Once you reach your full retirement age (see above), you may continue to work with no reduction in your benefits.
Medicare Eligibility Age Unchanged: The age to enroll in Medicare remains 65. It is important to enroll promptly or you risk paying Medicare late enrollment penalties. And, if you enroll in Medicare before you begin to collect Social Security benefits, you will have to pay the premiums out of pocket.
Work with Qualified Professionals
Given the tax law changes, this year more than most may be a good time to work with a qualified tax professional, or to seek the advice of a retirement specialist if you have questions about Social Security and other retirement issues.
For your retirement savings needs, you can rely on The Entrust Group for self-directed IRA administration services and look to our Learning Center for an extensive library of educational tools to improve your investment knowledge.