Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

IRS Announces Change in Income Ranges to Determine IRA Eligibility in 2021

Cost-of-living adjustments have been made to the dollar limitations related to retirement and pension plans for 2021.

Contributions to traditional IRAs can be deducted by taxpayers meeting certain conditions. If the taxpayer (or their spouse) is covered by a retirement plan at work, the deduction may be affected. The new income phaseout ranges are below:

  • Single taxpayer covered by workplace retirement = $66,000 – $76,000
  • Married couple filing jointly (the spouse making the contribution is covered by workplace retirement) = $105,000 – $125,000
  • Married couple filing jointly (the spouse making the contribution is not covered, but is married to someone who is covered) = $198,000 – $208,000
  • Married individual filing separate covered by workplace retirement = $0 – $10,000 (this phase-out range is not subject to the annual cost-of living adjustment)

Note – the deduction phase-outs do not apply if neither spouse is covered by a retirement plan at work.

Don’t miss: 4th quarter 2020 check in

The phase-out ranges for taxpayers making contributions to Roth IRAs has also been increased to:

  • Single and Head of Household = $124,000 – $139,000
  • Married couple filing jointly = $198,000 – $208,000
  • Married individual filing separate = $0 – $10,000 (this phase-out range is not subject to the annual cost-of-living adjustment)

Lastly, the income limit for the Saver’s Credit has been adjusted. The Saver’s Credit is a non-refundable tax credit available for low to moderate income taxpayers. The income limits are as follows:

  • Single and Married individuals filing separate = $33,000
  • Head of Household = $49,500
  • Married couple filing jointly = $66,000

The key employee contribution limits have remained unchanged.

  • The maximum contribution for 401(k), 403(b), most 457, and Thrift Savings Plan remains at $19,500.
  • The catch-up contribution for contributors age 50+ remains at $6,500.
  • The SIMPLE limitation holds steady at $13,500.
  • IRA annual contributions remain capped at $6,000 with a $1,000 catch-up contribution available.

Questions on your retirement planning? Contact your Henry+Horne tax professional today! The above information is general in nature and is not tax advice.

Haley Braun, CPA