Well, it’s finally a new year. I know we’re all hoping it will be better than 2020! As you make your plans for 2021, one of the things to take note of is the change in contribution limits and other tax changes.
401(k)
Let’s start with 401(k) contributions, since that’s a retirement fund that I view as a high priority — especially if your employer does contribution matching. Most things remain unchanged this year. That means the maximum contribution is $19,500 and the annual catch-up limit is again $6,500 for those age 50 or older. The one change is the total contribution made by employees and employers. That increased from $57,000 to $58,000 (plus the $6,500 catch-up contribution if you’re eligible). The same rules apply to 403(b) and most 457 plans.
IRA
For both traditional and Roth IRAs, there are no changes this year. That means the contribution limit is $6,000 with an additional $1,000 catch-up contribution for those 50 and older.
Tax Rates
Marginal tax rates have not increased although the tax brackets have been raised a bit. Here are the rates for single filers for 2021:
- 37% for incomes over $523,600 ($628,300 for married couples filing jointly)
- 35% for incomes over $209,425 ($418,850 for married couples filing jointly)
- 32% for incomes over $164,925 ($329,850 for married couples filing jointly)
- 24% for incomes over $86,375 ($172,750 for married couples filing jointly)
- 22% for incomes over $40,525 ($81,050 for married couples filing jointly)
- 12% for incomes over $9,950 ($19,900 for married couples filing jointly)
- 10% for incomes up to $9,950 ($19,900 for married couples filing jointly)
Standard Deduction
The standard deduction for those who do not itemize increased to $12,550 for singles filers and $25,100 for married couples filing a joint return.
Estate Taxes
Estates will be exempt from Federal taxes up to $11,700,000. The limit in 2020 was from $11,580,000.
Required Minimum Distributions
RMDs were suspended in 2020, but they’re back in 2021. So, anyone who turned 70 ½ on or before December 31, 2019 must make this withdrawal from their retirement accounts. If you reach 70 ½ after then, you can delay your RMD to the year you reach 72.
Naturally there are other changes in the tax laws and there are a lot of details as to what applies to whom. So, if you’d like to discuss how the 2021 tax rules affect your situation, or any other financial matters, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.