2019 Net Worth Update

I hope 2019 treated you well! I apologize for being missing in action… 2019 was full of health challenges not just for me, but for those close to me, so I decided to take some time off to focus on myself and my family. As we get ready to welcome 2020, I wanted to provide you with a quick update on my personal FIRE (financial independence/retire early) journey and upcoming law changes in 2020 that may affect your retirement planning.

While the trading day is not completely over yet, as of today, my net worth increased by $194k this year (excluding any appreciation in real estate) (the graph above shows $192k but I will be getting another $2,000 back from my flexible spend account and my dependent care account). This is the largest gain (in terms of dollars) to my net worth. This is another year in which my portfolio produced more than the income from my day job. That’s the magic of compound interest–the more you have in your portfolio, the easier it becomes to save. I always like to visualize compound interest as a snowball. As the snowball rolls down the mountain, it will pick up more snow and the snowball will pick up momentum and become larger faster. I am grateful that despite all the personal challenges I’ve had this year, I did not have to worry about money. I hope this inspires you to continue to save and invest.

I have friends who have asked me whether I’ve FIRE’d already. The answer is no. I consider myself financially independent, however, I have a very flexible job that pays well, and since I don’t have enough saved yet for BOTH my husband and I to retire together, I will keep working as long as my employer continues to allow me to be on 100% telework (I am fortunate to be the only person in my office to be offered 100% telework) and there are no major changes to the management team.

For 2020, I plan to continue to save and invest in stocks in my TSP and IRA, but I will not be throwing extra money into my brokerage account. We anticipate buying a new (used) car next year and paying for it in cash, so I have been saving for that. I am also building up a cash reserve to buy another rental property, for when the opportunity comes along (it could be next year or the year after depending on market conditions). So that’s the quick update on my personal journey, here are the updates to changes in 2020 that may affect your retirement planning:

401(k)/403(b)/457/TSP Contribution Limit – INCREASED

The 401(k)/403(b)/457/TSP contribution limit for 2020 has increased from $19,000 (in 2019) by $500 to $19,500. If you are paid biweekly, some employers have 27 pay periods next year while others have 26 pay periods. Make sure to check with your employer and set your contribution per paycheck accordingly if you plan to max out your 401(k)/403(b)/457/TSP contributions for the year.

The catch-up contribution limit for employees aged 50 and over who participate in these plans is also increased from $6,000 to $6,500.

IRA/Roth IRA Contribution Limit – UNCHANGED

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000.

Income Ranges for Eligibility Determination for IRA, Roth IRA, and Saver’s Credit – INCREASED

Even though the IRA/Roth IRA contribution limit remains unchanged, the income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit, all increased for 2020. From the IRS news release:

  • “For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, 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, up from $193,000 and $203,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.”

And the biggest change in 2020 that will affect your retirement plans (especially if you plan to leave an inheritance for your kids)… the SECURE Act

The SECURE Act becomes effective January 1, 2020. SECURE stands for “Setting Every Community Up for Retirement Enhancement”–it is intended to strengthen retirement security for all Americans. There are some pros and cons to this piece of legislation, depending on whether you’re planning to leave an inheritance to your kids. This legislation addresses the following (among other things) related to retirement:

1. Workers who don’t have access to workplace retirement accounts. (PRO)
2. It offers small businesses tax incentives to set up automatic enrollment in retirement plans for its workers, or allows them to join multiple employer plans, where they can band together with other companies to offer retirement accounts to their employees in the first place. (PRO) 
3. It eliminates the maximum age cap for contributions to traditional individual retirement accounts. (PRO)
4. It allows annuities to be offered as an investment option in 401(k) plans (you can thank the insurance companies for lobbying for this). (Could be a PRO or CON depending on whether you understand annuities and how complex they can be.)
5. It increases the required minimum distribution age from 70.5 to 72. (PRO)
6. It requires beneficiaries to withdraw all assets of an inherited account within 10 years (previously, you could stretch it out for an indefinite period of time to minimize your taxes–e.g. if a beneficiary inherited the account in his 40s or 50s, he could stretch it out until he is in in 90s to minimize his tax burden–well, that is no longer the case!). (CON)

Have a happy new year and be safe!

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