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On Monday, October 26, 2020, the Internal Revenue Service issued Notice 2020 – 79 announcing income range increases in 2021 for determining eligibility for deductible contributions to traditional IRA accounts, Roth IRAs, and cost of living adjustments for retirement plan contributions.(1)
In addition, Notice 2020 – 45 announced adjustments to income, capital gains, and estate tax exemptions among others.(2) Below is a quick summary of the two notices and the links below can take you to the actual notices if you would like more information.
Income Tax Changes
Maximum tax bracket will remain at 37%but the taxable income amounts that get you there will increase to $628,300 for married couples filing joint returns and $523,600 for single taxpayers.(2)
Capital Gains
Capital Gains will be 0% for married couples filing jointly with income of $80,800 and single taxpayers with income of $40,400.(2)
Capital Gains will be 15% for married couples filing jointly with income of $501,600 and single taxpayers with $445,850 of income.(2)
You will reach 20% if you have a married couple filing jointly with income of $501,601 or more or a single taxpayer of $445,851 or more.(2)
Standard deductions
Standard deductions will be $25,100 for married couples filing joint returns and $12,550 for single taxpayers. (2)
Annual Gift Exclusion
The annual gift exclusion will remain at $15,000. (2)
Unified Estate Tax Credit
The 2021 unified estate and gift tax exemption will be $11,700,000 per person, up from $11,580,000 in 2020. (2)
Roth IRA Phase-outs
The income phase-out range for single taxpayers to make contributions to a Roth IRA is $125,000 to $140,000. For married couples filing jointly, the income phase-out range is $198,000 to $208,000.(1)
Regular IRA Phase-out Ranges
For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000. (1)
For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000. (1)
For a married couple filing jointly where the spouse making the IRA contribution is not covered by a workplace retirement plan but is married to someone who is covered, the deduction is phased out between $198,000 and $208,000. (1)
Annual Contribution Limits
The limit on annual contributions to an IRA remains unchanged at $6,000. (1)
The limit on SIMPLE retirement accounts remains unchanged at $13,500. (1)
The limit on 401(K) contributions remains unchanged at $19,500. (1)
Based on a higher $290,000 compensation level for a SEP IRA, contribution limits increased $1,000 from $57,000 to $58,000. (1)
Other employer plans have remained unchanged from 2020.(1)
Catch-up Limits
Catch-up contributions for 401(K) plans remain unchanged at $6,500 and $1,000 for IRAs.(1)
SIMPLE plan catch-up limits remain unchanged at $13,500.(1)
In early January, Dunham will make available our laminated Key Financial Data card for 2021 with full and detailed information on all of these changes and more.
(1) https://www.irs.gov/pub/irs-drop/n-20-79.pdf
(2) https://www.irs.gov/pub/irs-drop/rp-20-45.pdf
Disclosure:
This document is provided for informational purposes only by Dunham & Associates Investment Counsel, Inc. solely in its capacity as a Registered Investment Adviser and should not be construed as legal and/or tax advice. Dunham & Associates Investment Counsel, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.