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Those who are mad at Costco for bringing out the Christmas decorations before Thanksgiving are really going to be infuriated with me now. Yes, the U.S. Internal Revenue Service (IRS) has come out with the annual inflation adjustments for the year 2020. As Financial Planners, we’re already looking ahead and, you guessed it, we’ve started planning. Most of the news is good. Included in the new 2020 rules are adjustments to tax rates and contribution limits, including higher estate tax and gift-tax exclusion limits.


Staring January 1, 2020, the IRS increased the amount that can be earned in the current seven-tiered tax table for inflation. The lowest tax rate remains at 10% and the highest at 37% with varying income limits by filing status.

The standard deduction amount for single filers increased in 2020 to $12,400 from $12,200 in 2019. The deduction for married filing jointly couples also increased in 2020 to $24,800 from $24,400 in 2019. [i]


Starting in the year 2020, individuals will now be able to gift a total of $11.58 million during their lifetime, free from federal estate or gift taxes. For a couple, that means they could potentially shelter an estate worth $23.16 million from federal taxes when they pass away – wow! The 2019 lifetime gift-tax exclusion was $11.4 million per person. In 2009, the estate tax exclusion limit was $3.5 million. With the 2020 Presidential Election on the horizon, many are wondering if the estate tax exclusion’s dramatic increase under President Trump will be ratcheted down to prior levels in an effort to equalize wealth and help underfunded government programs such as Medicare and Social Security.

In addition to the lifetime gift limit, individuals can also make annual gifts, free of taxation and excluded from the accumulative lifetime gift-tax exclusion. In 2020, the annual gift-tax exclusion is $15,000 per person or $30,000 per year for a married couple filing jointly. In other words, if Bachan and Jichan wanted to give money to their two grandchildren during their lifetime, they could each give $15,000 to each grandchild, for a total annual tax-free gift of $60,000. The annual gift-tax exclusion is a powerful gifting tool that is often overlooked. The annual gift limit for 2020 was unchanged from prior year.


The IRS also increased the limit that individuals can contribute towards a Defined Contribution plan such as a 401(k) or 403(b) for the year 2020 to $19,500. The limit was $19,000 in 2019. To take advantage of this increased contribution limit, employees should tell their employer sponsored plan representatives to increase their paycheck contribution amount to meet the higher maximum in the beginning of 2020.

Workers age 50 and above are also eligible to make a catch-up contribution on top of the $19,500 limit, increasing the amount of income they can shelter from income taxation annually. The new 2020 catch-up contribution is now $6,500, up from $6,000 in 2019.

The amount individuals can contribute to an Individual Retirement Account (IRA) is unchanged for the year 2020 and remains at $6,000. IRAs are also eligible for a catch-up contribution for savers age 50 and older. However, that too remains unchanged in 2020 at $1,000 per year.The savings limit for self-employed persons utilizing a SEP-IRA will also increase in the year 2020 to $57,000 from the prior $56,000 limit.

The savings limits seem high and perhaps unattainable at first. A Vanguard study in 2018 noted that only 13% of employees with a work sponsored plan saved the maximum limit allowed.[ii] However those who save, and particularly those who save early on in their careers, have the smoothest retirement cash-flow metrics and are often able to retire earlier in life with greater peace of mind. If you feel that your retirement savings plan could use review or an adjustment, reach out to a Certified Financial Planner™ for a second opinion. It’s never too late to start planning.

The commentary on this website reflects the personal opinions, viewpoints and analyses of Kondo Wealth Advisors, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc. or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.