2021 IRA Contribution Limits Remain Unchanged
The IRS announced Monday that IRA contribution limits would remain unchanged for 2021. They also announced the income ranges for eligibility would increase for 2021, although not by much.
Key Take Aways
- Really no big changes due to a largely negligible cost-of-living adjustment increase for 2021
- The amounts that can be contributed for IRAs, Roth IRAs, SIMPLEs, 401(k)s and other employer plans have all remained unchanged from the 2020 limits.
- Sep IRA contribution limits increased only $1,000 from $57,000 to $58,000 based on 20% of $290,000 of compensation, up from $285,000 in 2020.
Here are Your Contribution Limits for 2021
- 401(k) contribution limits for 2021 are unchanged at $19,500.
- Catch-up contribution limits for employees age 50 and over remain unchanged at $6,500.
- The limitation regarding SIMPLE retirement accounts remains unchanged at $13,500.
- The limit on annual contributions to an IRA remains unchanged at $6,000.
As the IRS explains in Notice 2020-79, taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)
Here are the phase-out ranges for 2021:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000, up from $65,000 to $75,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.
- 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 $198,000 and $208,000, up from $196,000 and $206,000.
- 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 limit for the Saver’s Credit (from $65,000; $49,500 for heads of household, up from $48,750; and $33,000 for singles and married individuals filing separately, up from $32,500.
- The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for singles and heads of household, up from $124,000 to $139,000. For married couples filing jointly, the income phase-out range is $198,000 to $208,000, up from $196,000 to $206,000. 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.
Roth IRA Phase-Out Limits 2021
The inflation adjustment helps Roth IRA savers too. In 2021, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $198,000 to $208,000 for married couples filing jointly, up from $196,000 to $206,000 in 2020. For singles and heads of household, the income phase-out range is $125,000 to $140,000, up from $124,000 to $139,000 in 2020.
2021 Deductible IRA Phase-Outs
You can earn a little more in 2021 and get to deduct your contributions to a traditional pretax IRA. Note: Even if you earn too much to get a deduction for contributing to an IRA, you can still contribute—it’s just nondeductible.
In 2021, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $66,000 and $76,000, up from $65,000 and $75,000 in 2020. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $105,000 to $125,000 for 2021, up from $104,000 to $124,000.
Estate and Gift Tax Changes for 2021
In the estate and gift area, the annual exclusion gifts that can be made to anyone remained at $15,000, per person.
The estate and gift tax exemptions saw the biggest increases; the 2021 transfer tax exemption (estate, gift and generation-skipping tax) is $11,700,000 per person, up from $11,580,000 in 2020, an increase of $120,000.
The standard deduction, is up slightly to $25,100 for married – joint, $12,550 for singles, and $18,800 for head of household.
The dollar limit on the amount of your IRA or 401(k) you can invest in a qualified longevity annuity contract is still $135,000 for 2021.
Despite the not-so-good news, there is no limit on how much you can invest in an annuity. Annuities are meant to be long-term retirement savings vehicles and as such they are able to grow tax-deferred allowing you to earn compound interest on money you normally would have been paying taxes on.
You do not have to claim interest earned as income in the year it was earned. For those savers with money in a CD; an annuity may be a good option to consider. You can compare today’s best annuity rates at our online annuity store.