The 2021 IRS Rules on Retirement Plan Contributions

Retirement

The 2021 IRS Rules on Retirement Plan Contributions

Posted by Infinite Wealth Advisors, LLC
3 weeks ago | November 9, 2020

Retirement plans such as the 401(k) and IRA are popular choices, due to certain tax incentives offered by the IRS. Of course, the agency can and does occasionally make adjustments to the rules, so it’s important to stay on top of these changes. Here’s what you need to know about new 401(k) and IRA rules that will take effect in 2021.

401(k) and IRA contributions limits will not increase. In many years, the IRS raises contribution limits in response to inflation, helping savers to accumulate more savings for retirement. Unfortunately, due to stagnated inflation rates and other factors, the contribution limits for 401(k) plans will not increase in 2021.

You can still contribute up to $19,500 to your 401(k), or $6,000 to an IRA next year, while reaping the tax benefits of doing so. Those who are over age 50 can also contribute an additional $6,500 to a 401(k) or $1,000 to an IRA.

While contribution limits are not increasing, those who are eligible for a health savings account can take advantage of similar tax breaks, while saving for current or future healthcare expenses.

More individuals can utilize IRAs. In order to make tax-advantaged contributions to an IRA, your income must fall within a certain range. The IRS has expanded that range now, so more people can take advantage of this type of retirement plan.

Next year, the maximum income to make the full tax-deductible contribution to a traditional IRA has climbed to $66,000 for individuals, phasing out at $76,000. For those who are married and file a joint tax return, the limit for making full deductible contributions is $105,000, phasing out at $125,000. However, for those not covered by an employer plan, contributions are fully tax deductible at any income.

For Roth IRAs, the contribution limits remain the same: $6,000 for people under 50 and $7,000 for people 50 and up.  However, the income range is wider, meaning that more people can contribute.  Single filers can earn up to $125,000 (up from $124,000 in 2020) and married couples filing jointly can earn up to $198,000 (up from $196,000 in 2020). That’s a $1,000 increase for single filers and a $2,000 increase for married couples filing jointly.

If you or your spouse are interested in starting an IRA, give us a call. We can help you determine whether you’re eligible for the account, and understand contribution limits along with potential tax advantages.

 

Have questions? Need assistance?

Use the form below to schedule an appointment.

    Call 877-281-8282 or email kevin@infinitewealthadvisors.com to speak with an agent.