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IRS Releases New Dollar Limitations for Retirement Savings Plan Actions

Retirement Planning for 2021: IRS Releases New Dollar Limitations for Retirement Savings Plan Actions

On October 26, 2020, the IRS released Notice 2020-79 outlining the cost-of-living adjustments to the dollar limitations for various retirement related actions for 2021. In addition, retirement plan contribution limit amounts remain the same for 2021.

Cost-of-living adjustments for IRAs – Regular and Roth – and the Savers Credit
The adjusted gross income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs) to contribute to Roth IRAs and to claim the Saver's Credit all increased for 2021.

The deductibility of contributions to a traditional IRA depends on if certain conditions are met by the taxpayer. If during the year, the taxpayer and/or their spouse is covered by an employee retirement plan, the deductibility of the contributions may be reduced, or phased out altogether, depending on the filing status and the adjusted gross income (“AGI”) levels of the taxpayer.

Changes to the phase-out ranges for 2021 are as follows:

  • For single taxpayers covered by a workplace retirement plan, the AGI 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 AGI phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's AGI is between $198,000 and $208,000, up from $196,000 and $206,000.

The following are the AGI phase-out ranges for taxpayers making contributions to a Roth IRA:

  • $125,000 to $140,000 for singles and heads of household, up from $124,000 to $139,000
  • $198,000 to $208,000 for married couples filing jointly, up from $196,000 to $206,000
  • $0 to $10,000 for married couples filing separately, unchanged for the current year

The following are the AGI limits for the Saver’s Credit for low- and moderate-income workers:

  • $33,000 for singles and married individuals filing separately, up from $32,500
  • $49,500 for head of households, up from $48,750
  • $66,000 for married couples filing jointly, up from $65,000

Pension plan contribution limit amounts unchanged for 2021
Some of the pension plan contribution limit amounts remain unchanged for 2021 and they include:

  • The limit on contributions by employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $19,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in these plans remains unchanged at $6,500.
  • The limitation regarding SIMPLE retirement accounts remains unchanged at $13,500.
  • The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

For additional information contact us at info@herbein.com. Article contributed by Ben Rusnak.