Tax law places limits on the dollar amount of contributions that you can make to Individual Retirement Accounts and by law, the IRS is required to adjust these limits annually for cost-of-living increases.
Going into 2021, you should familiarize yourself with these adjustments, so that you’re better informed as we plan for your retirement.
As you probably know, you can deduct contributions to a traditional IRA if you meet certain conditions, but the amount of the deduction will depend on your income (or joint income). Specifically, if you or your spouse are covered by a retirement plan at work, then the deduction may be reduced or phased out altogether.
As such, it is important to be aware of the income ranges that the IRS uses for determining eligibility to make deductible contributions as these income ranges and the dollar amount of allowed contributions can change from year to year with cost-of-living-adjustments. Further, it’s important to know the differences between a traditional and a Roth IRA too.
IRA Contribution Limit
IRA Catch-Up Contributions
Traditional IRA AGI Deduction Phase- out Starting at
Single or Head of Household
SEP Maximum Contribution
SEP Maximum Compensation
SIMPLE Maximum Contributions
401(k), 403(b), Profit-Sharing Plans, etc.
Here are the traditional IRA phase-out ranges for 2021, lifted directly from the IRS:
Here are the income phase-out ranges for taxpayers making contributions to a Roth IRA:
Taxes are complicated enough and reading, learning and implementing tax strategies that are most appropriate for you can be a daunting task.
As we head into the new year, as your financial advisor I will confirm that the tax decisions you make are consistent with your overall financial plan.