Things have to get better in 2021. You’re counting on it. And you’re counting on your retirement savings to get better, too. While 2021 IRA contribution limits aren’t necessarily going up, other changes are taking effect that could help boost your retirement plans, thanks to the SECURE Act.
So let’s take a look at some IRS changes. Income ranges for eligibility to make tax-deductible contributions to traditional IRAs, make contributions to Roth IRAs, and claim the Saver’s Credit have all gone up for 2021. Here are the details.
Traditional IRA Contribution Rules for 2021
Taxpayers can deduct contributions to a traditional IRA if a workplace retirement plan covers either the taxpayer or their spouse in 2021. The deduction may be reduced or phased out until it is eliminated, depending on filing status and income. If a workplace retirement plan covers neither the taxpayer nor their spouse, the deduction phase-outs don’t apply.
Here are the phase-out ranges for 2021, according to the IRS:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000–76,000, up from $65,000–75,000 in 2020.
- For married couples filing jointly, when the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000–125,000, up from $104,000–124,000 in 2020.
- For an IRA contributor who isn’t 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 $196,000–206,000 in 2020.
- For a married person who is filing a separate return and is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains as much as $10,000.
Forbes notes that even if you earn too much to gain a tax deduction for contributing to an IRA, you still can contribute, but you won’t qualify for a tax deduction.
Roth IRA Contribution Rules for 2021
Here are the latest contribution rules for Roth IRAs, according to the IRS:
- The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000–140,000 for singles and heads of household, up from $124,000–139,000 in 2020.
- For married couples filing jointly, the income phase-out range is $198,000–208,000, up from $196,000–206,000 in 2020.
- The phase-out range for a married person who is filing a separate return and who contributes to a Roth IRA is not subject to an annual cost-of-living adjustment and remains as much as $10,000.
Saver’s Credit Income Limit for 2021
The IRS says the 2021 income limits for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers are:
- $66,000 for married couples filing jointly, up from $65,000 in 2020.
- $49,500 for heads of household, up from $48,750 in 2020.
- $33,000 for singles and married individuals filing separately, up from $32,500 in 2020.
IRA Contribution Limit Is Unchanged for 2021
The limit on annual contributions to an IRA stays at $6,000 for 2021. The additional catch-up contribution limit for people 50 and over is not subject to an annual cost-of-living adjustment, so it remains $1,000.
SECURE Act Makes Key IRA Changes
The federal Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019, makes several changes related to IRAs. Among them are:
- The age when required minimum distributions must be taken from traditional IRAs has been pushed to 72, up from 70½, Kiplinger points out.
- The age restriction for making contributions to traditional IRAs has been removed. Previously, someone could not add to a traditional IRA after age 70½. Now, someone can keep adding money to a traditional IRA if they work into their 70s and beyond, Kiplinger notes. Roth IRAs still have no age restrictions.
Start early to avoid playing catch-up later in the year. Contact a U.S. Money Reserve IRA Account Executive to learn how you make the most of your IRA situation by initiating a rollover or transfer or setting up a new account.