IRS Announces Retirement-Related Changes for 2021
On October 26, 2020, the IRS announced changes coming to various retirement plans for the tax year 2021. The cost-of-living adjustments will affect income limits for pension plans and other retirement accounts. Additionally, the income ranges that determine eligibility to make deductible contributions to traditional IRAs contribute to Roth IRAs and claim the Saver’s Credit will increase for 2021.
If they meet specific conditions, taxpayers can deduct contributions to traditional IRAs, although the allowable deduction can be reduced based on filing status and income levels. The increased income phase-out ranges for making deductible contributions to traditional IRAs in 2021 are as follows:
- For single taxpayers covered by an employer’s retirement plan, the range is $66,000 to $76,000.
- For married couples filing jointly where the spouse making the IRA contribution is covered by an employer’s retirement plan, the range is $105,000 to $125,000.
- For an IRA contributor who is not covered by an employer’s retirement plan but is married to someone covered, the deduction is phased out if the couple’s income is between $198,000 and $208,000. However, if the taxpayer is covered by an employer’s retirement plan and is also married but files separately, the range remains $0 to $10,000.
The income limits for taxpayers making contributions to Roth IRAs have also been increased for 2021 and are as follows:
- For single taxpayers and heads of household, the phase-out range is $125,000 to $140,000.
- For married couples filing jointly, the phase-out range is $198,000 to $208,000.
- However, if the taxpayer contributing is married but files separately, the range remains $0 to $10,000.
For low and moderate-income workers, the income limits for the Saver’s Credit will be increased to $66,000 for married couples filing jointly; $49,500 for heads of household; and $33,000 for single taxpayers and married individuals filing separately.
It’s important to note that the primary employee contribution limits will not change for 2021. Employees who contribute to 401(k) plans, 403(b) plans, most 457 plans, and the Thrift Savings Plan will still be limited to contributions of $19,500. For employees, age 50 and over, the catch-up contribution limit remains $6,500. The annual contribution limits to IRAs also stay the same at $6,000, and the catch-up contribution limit for people age 50 and over will still be $1,000. As an employer, it is important to notify participants and update any plan documents accordingly so that employees have the tools to make the best decision.
If you have questions about the new IRS information or need assistance with another tax or retirement planning-related issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.
Angela Lawrence, Quality Control Coordinator at Klatzkin, contributed to this post.
©2020 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.