On October 26, 2020, The International Revenue Service (IRS) issued new changes to the income ranges for determining eligibility to make deductible contributions to IRAs (individual retirement accounts) as well as contributions to ROTH IRAs and the Savers Credit. In a year where unemployment has increased and pay decreases have become common, these new changes may allow for additional contributions for those that fall under the new threshold.
Historically, if a taxpayer or his/her spouse was covered by an employer-sponsored retirement plan such as a 401(k), the ability and amount they are also entitled to contribute toward their own IRA is phased out or may be eliminated entirely, based on the individual’s income and filing status. According to the IRS publication, the following phase out ranges have been amended for the traditional IRA for 2021:
The announcement did go on to verify that the maximum contribution amount will remain at $6,000 per year, and the catch-up amount for taxpayers over 50 remains at an additional $1,000 above that.
Depending on the availability of employer-sponsored retirement plans for each individual, taxpayers can maximize their retirement contributions for 2021 by determining whether their best savings is through a 401(k), 403(b), traditional IRA, ROTH IRA, or Savers Credit. By studying the guidance posted by the IRS with these new income range qualifications, taxpayers should determine early what plan is most beneficial for them and prepare for these contributions moving into the new year.
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