Inflation-adjusted income ranges for 2021 IRA and 401(k) plans

By Sally P. Schreiber, J.D.

The IRS on Monday announced that the income ranges to determine whether taxpayers are eligible to make deductible contributions to traditional individual retirement arrangements (IRAs), to contribute to Roth IRAs, and to claim the saver’s credit all will increase for 2021 from 2020 (Notice 2020-79). Most other employee retirement plan contribution limits will remain the same.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions, including income limitations. 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, above certain adjusted gross income levels until it is eliminated. If neither is covered by a work retirement plan, the phaseouts of the deduction do not apply. Here are the phaseout ranges for 2021, most of which increased from 2020:

  • Single taxpayers covered by a workplace retirement plan are subject to a phaseout range of $66,000 to $76,000, up from $65,000 to $75,000.
  • Married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, are subject to a phaseout range of $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 phaseout 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 phaseout 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 phaseout range is $198,000 to $208,000, up from $196,000 to $206,000. The phaseout 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.

Most other employee contribution limits remain unchanged from 2020 to 2021

The limit on contributions by employees who participate in Sec. 401(k), Sec. 403(b), most Sec. 457 plans, and the federal government’s Thrift Savings Plan remains unchanged from 2020 at $19,500.

The catch-up contribution limit for employees age 50 and over also remains unchanged at $6,500.

The limitation for SIMPLE retirement accounts remains unchanged from 2020 at $13,500.

For IRAs, the limit on annual contributions remains unchanged from 2020 at $6,000. The additional catch-up contribution limit for individuals age 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.

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