Getting up to speed on retirement plan contributions and taxes

| Mar 31, 2021 | Tax Issues

In terms of retirement plans, you may have a 401(k), a traditional IRA or a Roth IRA and you make continuing contributions to save for the time your working career ends.

However, those contributions and the associated tax consequences change annually. Do you know how 2021 has changed the picture for these plans?

Saving for retirement

If you work for a corporation, saving for your so-called golden years is easy because retirement plans are commonplace offerings in large companies. Alternatively, you may have owned one of these for years since they are also available for small businesses and for people who are self-employed. However, the changes relative to contributions and tax consequences are ongoing and keep plan owners on their toes.

Income limits matter

Some things remain the same, such as the age limits for contributions for traditional and Roth IRA accounts. However, in 2021, the income limit for contributing to a Roth IRA increases. For example, if you are a single tax filer or head of household, the earnings limit is $139,000 or $206,000 for joint filers.

SEP and SIMPLE IRAs

The Savings Incentive Match Plan for Employees is an IRA for small businesses, while a SEP IRA is for the self-employed. Contribution limits for the SIMPLE IRA have not changed from 2020. However, the limits for 2021 SEP IRAS have increased by $1,000 over the 2020 versions.

Your retirement picture

Attempting to keep up with the changes to your own retirement plan as well as the plan for your spouse may leave you with a retirement picture that appears somewhat cloudy. Fortunately, there are professionals to whom such visions are clear and who can help you better understand retirement plan contributions, benefits, tax consequences and the overall effect on your future.