IRS Boosts 2021 Income Limits for Deductible IRA Contributions

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The Internal Revenue Service announced Monday income range increases in 2021 for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements, to contribute to Roth IRAs and to claim the Saver’s Credit.

However, 401(k) contribution limits for 2021 are unchanged at $19,500.

Catch-up contribution limits for employees age 50 and over remain unchanged at $6,500.

The limitation regarding SIMPLE retirement accounts remains unchanged at $13,500.

The limit on annual contributions to an IRA remains unchanged at $6,000.

(Related: New House Bill Would Boost RMD Age to 75)

As the IRS explains in Notice 2020-79, taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

Here are the phase-out ranges for 2021:

• 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. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $66,000 for married couples filing jointly, up from $65,000; $49,500 for heads of household, up from $48,750; and $33,000 for singles and married individuals filing separately, up from $32,500.
• The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for singles and heads of household, up from $124,000 to $139,000. For married couples filing jointly, the income phase-out range is $198,000 to $208,000, up from $196,000 to $206,000. 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.

IRA specialist Ed Slott of Ed Slott & Co., told ThinkAdvisor via email Monday that there were “really no big changes due to a largely negligible cost-of-living adjustment increase for 2021.”