The Internal Revenue Service recently reported changes to the 401k and IRA. The agency’s announcements to Congress issues new regulations. Each alteration will impact retirement accounts and 401(k) contribution limits in 2021. Here are a few things Americans need to know regarding their announcement.
What Savers Can Expect
Most 401(k), 403(b), 457 plans, and Thrift Savings Accounts will be within the same framing as before. The current rules would allow people age 50 and over to save money by contributing $19,500, or $26,000 to a traditional IRA. Likely, regulations will not change for SIMPLE retirement accounts. They typically maintain $13,500 contribution limits. The IRS allows individual retirement account contribution limits to remain at $6,000. Additional catch-up contributions for older contributors will also stay at $1,000.
There are a few changes that the IRS has announced regarding IRA and 401k contributions for 2021:
Tax Deduction Phase-outs for Traditional IRA Contributions
Taxpayers will be able to deduct traditional IRA contributions. To qualify, recipients may not participate in employer-sponsored retirement accounts. They also may not make above earnings limits. This change subjects employees to reduced or eliminated deductions. This rulingalso includes spouses covered by the same plan as the primary recipient.
2021 Phaseout Ranges
In 2021, single taxpayers must consider the phaseout range which will increase by $1,000. Ranges for spouses who file jointly with coverage from employer-sponsored plans have changed. It is now $66,000 to $76,000 and is set to increaseat $105,000 to $125,000. Limits to Couples’ workplace plans that only cover spouses individually are necessary. The traditional IRA contribution will require a higher phaseout range. The changes to IRA and 401k regulations are not necessarily the same for every situation. If separate plans cover both spouses, the range is consistent with 2020, remaining at $0 to $10,000. Look at the IRS publications for the most current regulations and info regarding other aspects specific to your overall financial situation.
Roth IRA Contributor Prerequisites
Some of the changes include income limits for Roth IRA contributions. Their income phaseout ranges for 2021 include the following.
Roth IRA phaseout ranges:
• Single and heads of households - $125,000 to $140,000 (an additional $1,000 from 2020)
• Married couples who file jointly - $198,000 to $208,000,
• Married couples filing separately - $0 to $10,000 (unchanged)
Saver’s Credit income limits:
• Low- and moderate-income couples file jointly - $66,000 (an additional $1,000 from 2020)
• Heads of the household - $49,500
• Single individuals / married filing separately - $32,500
Rules for IRA and 401k contributions, when first released, will underline many adjustments. It is up to you to stay updated. If you are curious about what is in store for you, it is always wise to be alert. Remember, tax changes happen every year. The IRS has to release any changes to the public before they become active.
Most will want to wait for more detailed information from the IRS before taking any action. It would be best to learn as much as you can about the forthcoming changes. They will likely affect any significant decisions.