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Is saving for the future important to you?  Then this will interest you!  The IRS has issued Notice 2020-79, which contains the annual update on retirement savings contribution limits.

2021 Changes

  • Annual deferral limit (402(g) limit) for 401(k), 403(b) and 457(b) plans: $19,500 (unchanged)
  • Catch-up contributions to 401(k), 403(b), and 457(b) plans: $6,500 (unchanged)
  • Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $13,500 (unchanged)
  • Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,000 (unchanged)
  • IRC Sec. 401(a)(17) compensation cap: $290,000 ($285,000 for 2020)
  • Highly compensated employee (HCE) definition income threshold: $130,000 (unchanged)
  • Top-heavy determination key employee definition income threshold: $185,000 (unchanged)
  • SEP plan employee income threshold for benefit eligibility: $650 ($600 for 2020)
  • Qualifying longevity annuity contract (QLAC) amount excludible from required minimum distribution determinations: $135,000 (unchanged)

IRA Contribution Contribution Credit Amounts

Annual limitations for IRA contributions, deductibility for those who are active participants in employer-sponsored retirement plans, and those seeking an income tax credit for retirement saving contributions, have slightly different indices than are used for determining cost-of-living adjustments (COLAs) in employer plans. Following are the limitations for 2021.

  • Traditional and Roth IRA contributions: $6,000 (unchanged)
  • Traditional and Roth IRA catch-up contributions: $1,000 (not subject to COLA adjustments)
  • IRA deductibility phase-out for single taxpayers participating in employer plans rises to $66,000 to $76,000 (was $65,000 to $75,000)
  • IRA deductibility phase-out for married joint filing taxpayers participating in employer plans rises to $105,000 to $125,000 (was $104,000 to $124,000)
  • IRA deductibility phase-out for married with spouse an active participant in employer plan rises to $198,000 to $208,000 (was $196,000 to $206,000)
  • Roth IRA income limitation for determining maximum contribution for married joint filers: phase-out range rises to $198,000 to $208,000 (was $196,000 to $206,000)
  • Roth IRA income limitation for determining maximum contribution for single filers and heads-of-households: phase-out range rises to $125,000 to $140,000 (was $124,000 to $139,000)

Taxpayers who make contributions to IRAs or deferral-type employer-sponsored retirement plans of up to $2,000 may be eligible for a special income tax credit, the “saver’s credit,” of 10, 20, or 50 percent of the amount contributed, depending on their income.

For joint filers, the maximum adjusted gross income level for

  • the 50 percent tax credit is $39,500.
  • the 20 percent tax credit is $43,000; and
  • the 10 percent tax credit is $66,000.

For head of household filing status, the maximum adjusted gross income level for

  • the 50 percent tax credit is $29,625.
  • the 20 percent tax credit is $32,250; and
  • the 10 percent tax credit is $49,500.

For all other filing statuses, the maximum adjusted gross income level for

  • the 50 percent tax credit is $19,750.
  • the 20 percent tax credit is $21,500; and
  • the 10 percent tax credit is $33,000.

When you think about making retirement account contributions, bring your tax advisor into the loop for their guidance (and to make sure you get any tax credit due to you).  Read more about contribution limits on the uDirect website HERE

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