November 24, 2020 | Categories: Uncategorized

What You Need to Know About IRA and 401k Contributions In 2021

The Internal Revenue Service recently reported changes to the 401k and IRA. The agency’s announcements to Congress issues new regulations. Each alteration will impact retirement accounts and 401(k) contribution limits in 2021. Here are a few things Americans need to know regarding their announcement.

Most will want to wait for more detailed information from the IRS before taking any action. It would be best to learn as much as you can about the forthcoming changes. They will likely affect any significant decisions.

What savers can actually contribute to their accounts has remained unchanged for 401(k), 403(b), most 457 plans and Thrift Savings Accounts, the IRS said in its announcement. That means workers will still be able to save $19,500, or $26,000 if they are aged 50 or older (thanks to the catch-up contribution limit, unchanged at $6,500).

Individual retirement account contribution limits are also the same for 2021 — $6,000 with an additional catch-up contribution of $1,000 for people 50 and older. SIMPLE retirement accounts still have the limit at $13,500 for next year.

Here are changes that the IRS has announced regarding IRA and 401k contributions for 2021:

Tax Deduction Phase-outs for Traditional IRA Contributions

Taxpayers will be able to deduct traditional IRA contributions. To qualify, recipients may not participate in employer-sponsored retirement accounts. They also may not make above earnings limits. This change subjects employees to reduced or eliminated deductions. It also includes spouses covered by the same plan as the primary recipient.

There are a few other changes to be aware of when it comes to IRA and 401k contributions. Currently, making both employer and self-directed contributions to both accounts are workable. However, they may no longer be tax-deductible. Also, the IRS will look to cut some of the current restrictions on Roth IRA contributions.

2021 Phaseout Ranges

Taxpayers are allowed to deduct contributions to a traditional IRA depending on certain factors, such as that they do not participate in an employer-sponsored retirement account and do not make over the earnings limits. Workers or their spouses covered by a plan may be subject to a reduced or eliminated deduction.

  • Single taxpayers covered by an employer’s retirement plan have a phaseout range of $66,000 to $76,000 (up $1,000 from 2020).
  • If a spouse in a married couple who files jointly is covered by a workplace plan and is the one contributing to the traditional IRA, the phaseout range is $105,000 to $125,000 in 2021. For someone who is not covered by a workplace plan but is married to someone who is, the phaseout range for the couple’s income is $198,000 to $208,000.
  • Married couples filing separately and covered by an employer-sponsored plan have a phaseout range of $0 to $10,000, which is unchanged from 2020.

Roth IRA Contributor Prerequisites

Some of the changes include income limits for Roth IRA contributions. Their income phaseout ranges for 2021 include the following.

Roth IRA phaseout ranges:

• Single and heads of households – $125,000 to $140,000 (an additional $1,000 from 2020)

• Married couples who file jointly – $198,000 to $208,000,

• Married couples filing separately – $0 to $10,000 (unchanged)

Saver’s Credit income limits:

• Low- and moderate-income couples file jointly – $66,000 (an additional $1,000 from 2020)

• Heads of the household – $49,500

• Single individuals / married filing separately – $32,500

Rules for IRA and 401k contributions, when first released, will underline many adjustments. It is up to you to stay updated. If you are curious about what is in store for you, it is always wise to be alert. Remember, tax changes happen every year. The IRS has to release any changes to the public before they become active.

Source: https://www.marketwatch.com/story/401-k-and-ira-changes-for-2021-where-and-how-can-you-contribute-next-year-11603748200 

November 24, 2020 | Categories: Uncategorized

Leave a Reply

Your email address will not be published. Required fields are marked *