2021 Maximum Contribution Levels
Happy New Year to our clients and associates!
Each year we like to update you with any new numbers that may affect your finances.
- Traditional and Roth IRA maximum contributions are again $6,000 per year for those under age 50. A $1,000 additional catch-up contribution is allowed for those age 50 and above.
- Traditional 401(k) and Roth 401(k) contributions are maxed at $19,500 for those under age 50. An additional catch-up of $6,500 is allowed for those at or over age 50 for a total of $26,000..
- The Social Security wage tax limit rises to $142,800 for 2021. (This was $137,700 in 2020.) Above this number, Social Security is not deducted from your wages. There is no wage limit on the Medicare tax.
- To stimulate the restaurant sector, business-related meal and beverage expenses are now deductible at 100% through the end of 2022 (up from the 50% limit in 2020).This applies to delivery and carryout meals as well as dine-in meals.
- Starting in 2021, single filers may deduct $300 of cash donations and joint filers may deduct $600 of cash donations to non-profit and charitable organizations, even if they do not itemize their taxes. (Note: This deduction will reduce taxable income but not your adjusted gross income.)
- For those who do itemize their taxes on their 2021 filing, they will be able to deduct qualified charitable donations up to 100% of their Adjusted Gross Income (AGI).
- Perhaps the biggest news is that Required Minimum Distributions (RMDs) are reinstated for 2021 and the new starting age for distribution is 72 (per the SECURE Act). This means that if your 70th birthday is on or after July 1, 2019 you do not have to take distributions until you reach age 72. Those of you who have already started RMDs must continue taking your RMD, even if you are not yet age 72. We are analyzing all clients based on age to determine your personal requirements and will be in touch to discuss this. We know this is confusing, so please do not hesitate to call with any questions.
- Qualified Charitable Distributions (QCDs) from an IRA are still permissible and non-taxable for up to $100,000 of qualified contributions to an eligible non-profit starting at age 70.5. Even if you have not reached your minimum distribution age, you can make a QCD starting at age 70.5 (not January 1 of that year, but any time after you turn age 70.5).
- 529 Plan Announcement: The Connecticut Higher Education Trust (CHET) recently announced they will be switching their investment offerings from TIAA-CREF to Fidelity beginning in February 2020. This is significant as we have always recommended the UTAH 529 Vanguard Plan as best in class (along with several financial publications who felt as we do). Now that Connecticut’s program is moving to Fidelity, it may be worth moving assets from the Utah plan and to make all future contributions to CT’s 529 program. This is because, along with the better underlying investment selections, a joint filing CT couple can take up to $10,000 of contribution off their state income for tax calculation purposes. (A single filer is allowed $5,000.) We must analyze the new investment options to determine if this makes sense, so watch for any new announcements we may make.
The numbers and concepts above are from sources believed to be reliable. As always, please be sure to consult a professional tax advisor regarding your specific situation.
Wishing you the best in the new year!
Past performance is not indicative of future performance. Loss of principal and/or loss of portfolio value are possible.