More taxpayers will qualify for retirement tax breaks in 2021, but the contribution limits for IRAs, 401(k)s, and other retirement accounts won’t go up for next year.
Employees who are saving for retirement through 401(k)s, 403(b)s, most 457 plans, can contribute up to $19,500 to those plans during the year. Unfortunately, that’s the same contribution limit in place for 2020. The “catch-up” contribution limit for employees age 50 or older also holds steady in 2021 at $6,500.
For anyone saving for retirement with a traditional or Roth IRA, the 2021 limit on annual contributions to their IRA account remains unchanged at $6,000, same as it was for both 2019 and 2020. The additional IRA “catch-up” contribution for people 50 and over is not subject to an annual cost-of-living adjustment and stays at $1,000.
Likewise, the contribution limit for a SIMPLE IRA, which is a retirement plan designed for small businesses with 100 or fewer employees, stays put at $13,500 for 2021.
The maximum income levels allowed to make deductible contributions to traditional IRAs, and contribute to Roth IRAs, all increased significantly for 2021, meaning more taxpayers will qualify for these tax breaks.
If you’re contributing to a traditional IRA, the deduction allowed for your contribution is gradually phased-out if your income is above a certain amount. For 2021, the phase-out ranges are:
• $105,000 to $125,000 for a married couple filing jointly if the spouse making the IRA contribution is covered by a workplace retirement plan.
• $198,000 and $208,000 for a married couple if the spouse contributing to an IRA is not covered by a workplace retirement plan and the other spouse is covered.
• $0 to $10,000 for a married person filing a separate return who is covered by a workplace retirement plan (the same as 2020 because this range is not subject to an annual cost-of-living adjustment).
For people saving for retirement with a Roth IRA, the actual amount that you can contribute to the account is based on your income.
• Contributions begin to be phased out above those amounts, and you won’t be able to put any money into a Roth IRA in 2021 once your income reaches $140,000 if single or $208,000 if married and filing.
• The phase-out range for a married person 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 for 2021.
Contact Us: Retirement plans are not one size fits all. Feel free to contact me, Cory Lyon, directly at 561-209-1120, if you need to reexamine your retirement strategy because your financial situation has changed. At TFG Financial, we believe in customized investment portfolio design and personalized asset management. I act as a fiduciary for all my clients.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
