Taxpayers trying to plan their 2021 deductible retirement plan contributions will be happy to learn that the Internal Revenue Service this week published Notice 2020-79.
The IRS says the notice includes “income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2021.”
The deductibility of traditional IRA contributions is further limited when a taxpayer or their spouse is covered by a workplace retirement plan. The agency explains that this can trigger the following phase-out ranges, which can ultimately reduce the deduction to zero:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000, up from $65,000 to $75,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $198,000 and $208,000, up from $196,000 and $206,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Roth IRAs similarly have a phase-out range, which was also increased in Notice 2020-79:
- Single taxpayers and heads of household: $125,000 to $140,000, up from $124,000 to $139,000
- Married couples filing jointly: $198,000 to $208,000, up from $196,000 to $206,000
The IRS notes that “the phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.”
The Saver’s Credit income limits were also increased for 2021:
- Single taxpayers and married couples filing separately: $33,000, up from $32,500
- Heads of household: $49,500, up from $48,750
- Married couples filing jointly: $66,000, up from $65,000
Finally, the IRS says that certain employee contribution limits were not changed by Notice 2020-79:
- 401(k), 403(b), most 457 plans, and the Thrift Savings Plan: $19,500
- Catch-up contributions for employees aged 50 with a 401(k), 403(b), most 457 plans, and the Thrift Savings Plan: $6,500
- SIMPLE retirement accounts: $13,500
- Annual contributions to an IRA: $6,000
- Additional catch-up contribution limit for individuals aged 50 and over: $1,000 (not affected by annual cost-of-living adjustment)
For more information about the updated income ranges, check out the notice on IRS.gov.
Source: IR-2020-244