Numbers to know for the new year.
On October 26, the Treasury Department released the 2021 adjusted figures for retirement account savings. Although these adjustments won’t bring any major changes, there are some minor elements to note.
401(k)s. The salary deferral amount for 401(k)s remains the same at $19,500, while the catch-up amount of $6,500 also remains unchanged.
However, the overall limit for these plans will increase from $57,000 to $58,000 in 2021. This limit applies if your employer allows after-tax contributions to your 401(k). It’s an overall cap, including your $19,500 (pretax or Roth in any combination) salary deferrals plus any employer contributions (but not catch-up contributions).
Individual Retirement Accounts (IRA). The limit on annual contributions remains at $6,000 for 2021, and the catch-up contribution limit is also unchanged at $1,000. This total includes traditional IRA (pre-tax) and Roth IRA accounts or a combination.
Deductible IRA Contributions. 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.
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.
Roth IRAs. Roth IRA account holders will experience some slightly beneficial changes. In 2021, the Adjusted Gross Income (AGI) phase-out range will be $198,000 to $208,000 for couples filing jointly. This will be an increase from the 2020 range of $196,000 to $206,000. For those who file as single or as head of household, the income phase-out range has also increased. The new range for 2021 will be $125,000 to $140,000, up from the current range of $124,000 to $139,000.
QLACs. 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.
Although these modest increases won’t impact many, it’s natural to have questions anytime the financial landscape changes. If you’re curious about any of the above, click here to contact us.
Element Wealth, LLC (“Element Wealth”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Element Wealth’s investment advisory services can be found in its Form ADV Part 2, which is available upon request. Element Wealth does not provide tax advice.