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- The IRS is increasing income limits for Roth IRA accounts in 2021. Income limits that dictate who can take deductions on contributions to traditional IRAs are also rising in 2021.
- Anyone making less than $125,000 (or married couples earning up to $198,000 and filing jointly) will now be able to able to contribute the maximum to a Roth IRA.
- And anyone making less than $66,000 (or married couples earning $105,000 and filing jointly) can deduct any contributions made to a traditional IRA.
- However, the IRS isn't increasing maximum contribution limits this year: Workplace retirement plans, like 401(k)s, still max at $19,500, and IRA contributions top out at $6,000 per year for workers under 50.
- Use Blooom to analyze your 401(k) today and see how you can grow your retirement savings »
More people will gain access to Roth IRAs and deductions from contributions to traditional IRAs in 2021, and that's a big advantage for Americans saving for retirement. The IRS announced the new income limits on October 26.
Anyone earning less than $125,000 per year (or married couples earning up to $198,000 and filing jointly) will be able to contribute the maximum amount to a Roth IRA in 2021, a slight increase from last year at $124,000 and $196,000 respectively.
Similarly, more people will also qualify for traditional IRA tax deductions. You can put money into a traditional IRA regardless of how much you earn, but your ability to deduct the contributions on your tax return are limited to your income level and what other retirement accounts you use.
However, maximum annual contribution limits to these accounts aren't increasing for 2021, and limits haven't increased since 2019. Workers can contribute the same $19,500 to workplace retirement plans in 2021, including 401(k)s. Similarly, IRA contribution limits are the same at $6,000 in 2021, and $7,000 for workers over age 50.
Roth IRA income limits are increasing in 2021
If you didn't qualify for a Roth IRA in 2020, and your adjusted gross income hasn't increased, you may qualify for one in 2021. The IRS added $1,000 to the income limit for single filers, and increased the limit $2,000 for people filing jointly.
Each of these income limits has a "phase-out period," where there are reduced contributions allowed. Above the top limit, Roth IRAs aren't available. Here's how changes to the income limits break down for each tax filing status.
|Tax filing status||2021 income limit||2020 income limit|
|Single, or head of household||Phase out starts at $125,000 up to $140,000||Phase out starts at $124,000 up to $139,000|
|Married, filing jointly||Phase out starts at $198,000, up to $208,000||Phase out starts at $196,000, up to $206,000|
Roth IRAs are a favorite account type for anyone who wants to withdraw retirement savings tax-free later in life. These accounts are funded with money you've already paid taxes on, and the money grows tax-free.
Income limits are also changing for who can deduct contributions to a traditional IRA
Traditional IRAs function differently than Roth IRAs — the tax advantages come now as an income tax deduction, instead of later when you take the money out (as would be the case with a Roth IRA).
But not everyone who can open a traditional IRA can deduct the contributions they make. In 2021, these limits are also increasing.
The ability to qualify for a deduction hinges on two factors: whether you have access to a retirement plan, like a 401(k) or 403(b), through your employer, and your income. Here's how the income limits are changing in the new year:
|Tax filing status||2021 income limit||2020 income limit|
|Single or head of household who has access to a workplace retirement plan||Phase out starts at $66,000, up to $76,000||Phase out starts at $65,000, up to $75,000|
|Married filing jointly with access to retirement plan||Phase out starts at $105,000, up to $125,000||Phase out starts at $104,000, up to $124,000|
|Married filing jointly, where one spouse doesn't have workplace retirement plan access||Phase out starts at $198,000, up to $208,000||Phase out starts at $196,000, up to $206,000|
Experts are always recommending IRAs, and the benefits are clear
For most people, simply saving in your workplace's retirement plan, like a 401(k), isn't enough. Having multiple types of retirement accounts can help you take advantage of different tax structures and perks of different types of accounts.
IRAs have long been expert favorites for their flexibility and tax advantages, especially for those who don't have the option to save in a 401(k) at work. Roth IRAs come with with more investment options and tax-free growth that will allow savers to keep more of their money in retirement. Traditional IRAs come with the benefit of tax deductions for some savers. However, both only have benefits available to some savers under certain income limits.
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