2021 will be a great time to focus on your retirement savings! Thanks to the power of compound interest, the more you save this upcoming year, the better off you will be later. If you are ready to make more headway on your retirement savings in 2021, keep reading to find out how much you can contribute.
WHAT’S Changing: Income Ranges
While contribution limits will stay the same for most retirement plans, the maximum income levels for traditional IRA deductions, Roth IRA contributions, and the Saver’s Credit will go up in 2021. This income limit change is excellent news as it may mean that you will be eligible for a tax break that you did not qualify for in 2020. Here are some details on the 2021 increases:
Lock in the Traditional IRA deduction benefit if you meet these criteria:
- You are single and earn anywhere from $66,000 to $76,000.
- You are married and filing jointly, and the spouse with the IRA contribution makes between $105,000 to $125,000.
- You’re a married couple with an income that falls between $198,000 and $208,000, and an employee retirement plan does not cover one spouse while the other is.
- You are married and filing individually with a separate return and covered by an employee retirement plan with an income that ranges between $0 and $10,000.
Your income will determine whether you can use a Roth IRA as a retirement savings tool. You will be able to contribute the maximum in 2021 if:
- You are single, and your income is less than $125,000.
- You are married, and you make less than $198,000.
You will not be able to save for retirement with a Roth IRA in 2021 if:
- You are single, and your income reaches $140,000.
- You are married, and your income hits $208,000.
The saver’s credit is a tax credit you may cash in on if you make salary-deferral contributions to your employer-sponsored 401(k), 403(b), SIMPLE IRA, SEP IRA, or government 457 plan. You can enjoy this benefit if:
- You are single, or a married individual filing separately. and make up to $33,000.
- You are married, filing jointly, and earn up to $66,000.
- You are a ‘head-of-household’ filer with an income of up to $49,500.
Most Contribution Limits Will Stay the Same
If you’re saving for retirement through a 401(k), 403(b), 457, or the Thrift Savings Plan, you can expect the same contribution limit from 2020. You will be able to contribute up to $19,500 to any of these plans during the new year. In the event you are 50 years of age or older, you can enjoy the additional “catch-up” contribution limit, which will be $6,500. You may max out your plan at $26,000, just like you could in 2020.
When it comes to a traditional or Roth IRA, the annual contribution limit also remains the same from 2020 and maxes out at $6,000. If you are at least 50, you can benefit from the annual cost-of-living adjustment of $1,000 for a total contribution limit of $7,000.
If you are a small business with 100 or fewer employees and save for retirement via a SIMPLE IRA, your contribution limit will not change from 2020. In 2021, you can max out your plan at $13,500.
Automate Your Retirement savings
By automating your retirement savings in 2021, you will find it easier to meet your goals and save for retirement with virtually no thought or effort. Your net worth will continue to grow since deductions are made automatically from your paycheck.
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