REGION – Many IRA and retirement plan limits are indexed for inflation each year. While some of the limits remain unchanged for 2021, other key numbers have increased.
IRA contribution limits
The maximum amount you can contribute to a traditional IRA or a Roth IRA in 2021 is $6,000, which is unchanged from 2020. The maximum catch-up contribution for those age 50 or older remains $1,000. You can contribute to both a traditional IRA and a Roth IRA in 2021, but your total contributions cannot exceed these annual limits.
Income limits for deducting traditional IRA contributions
If you are not covered by an employer retirement plan, your contributions to a traditional IRA are generally fully tax-deductible. If you’re married, filing jointly, and you’re not covered by an employer plan but your spouse is, your deduction is limited if your modified adjusted gross income is between $198,000 and $208,000, and eliminated if your MAGI is $208,000 or more.
For those who are covered by an employer plan, deductibility depends on your income and filing status.
If your 2021 federal income tax filing status is single or head of household, your IRA deduction is limited if your MAGI is between $66,000 and $76,000. Your deduction is eliminated if your MAGI is $76,000 or more.
If your filing status is married and filing jointly, your IRA deduction is limited if your MAGI is between $105,000 and $125,000 combined. Your deduction is eliminated if your MAGI is $125,000 or more combined.
If you’re married but filing separately, your IRA deduction is limited if your MAGI is $10,000 or under and is eliminated if it is more than $10,000.
Income limits for contributing to a Roth IRA
The income limits for determining how much you can contribute to a Roth IRA have also increased.
If your filing status is single or head of household, you can contribute the full $6,000 to a Roth IRA if your MAGI is $125,000 or less. If you’re married and filing a joint return, you can make a full contribution if your MAGI is $198,000 or less. Again, contributions can’t exceed 100% of your earned income.
Employer retirement plan limits
Most of the significant employer retirement plan limits for 2021 remain unchanged from 2020. The maximum amount you can contribute to a 401(k) plan remains $19,500 in 2021. This limit also applies to 403(b) and 457(b) plans, as well as the Federal Thrift Plan. If you’re age 50 or older, you can also make catch-up contributions of up to $6,500 to these plans in 2021.
The amount you can contribute to a Simple IRA or Simple 401(k) remains $13,500 in 2021, and the catch-up limit for those age 50 or older remains $3,000.
If you participate in more than one retirement plan, your total elective deferrals can’t exceed the annual limit – $19,500 in 2021 plus any applicable catch-up contributions. Deferrals to 401(k) plans, 403(b) plans, and Simple plans are included in this aggregate limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan – a total of $39,000 in 2021, plus any catch-up contributions.
The maximum amount that can be allocated to your account in a defined contribution plan in 2021 is $58,000 plus age 50 or older catch-up contributions. This includes both your contributions and your employer’s contributions. Special rules apply if your employer sponsors more than one retirement plan.
Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans in 2021 is $290,000, and the dollar threshold for determining highly compensated employees remains $130,000, unchanged from 2020.
Article written by Huntley Financial Services. For more information, contact Mark Huntley at 888-922-1035.