Every year, the IRS makes cost of living changes to the IRA contributions limits. For 2021, the IRA contribution limit is $6,000 or $7,000 if you are at least age 50. Not much has changed for next year. Here’s the breakdown for the 2021 IRA contribution limit changes.
2020 IRA Contribution Limits
- IRA Limit – $6,000
- IRA Catch-up Contribution – $1,000
- SEP IRA – $57,000
- SIMPLE IRA – $13,500
- SIMPLE Catch-up – $3,000
2021 IRA Contribution Limits
- IRA Limit – $6,000
- IRA Catch-up Contribution – $1,000
- SEP IRA – $58,000
- SIMPLE IRA – $13,500
- SIMPLE Catch-up – $3,000
What this Means
As you can tell from the lists, the only limit that has increased is the SEP IRA. All regular IRA plan limits remain unchanged for 2021, including traditional plans, Roth IRAs and even Self-Directed IRAs. For small business owners who utilize the SEP IRA, they can save an additional $1,000 next year. For those with a SIMPLE IRA, there is no increase to the annual contribution limit. However, there is some welcome news for IRA savers.
Deductible Phase-Outs
One of the biggest benefits of saving with a traditional IRA, is the upfront tax break you receive. However, in order for your contribution to be deductible on your tax return, you must be under a certain income. If you are under the limit, you can take a full deduction. The amount that is deductible is phased out until you reach the maximum annual income, at which point, you do not receive a deduction.
| Filing Status | Phase-out Begins | Phase-out Ends |
| Single or Head of Household/Covered by a workplace plan | $66,000 | $76,000 |
| Married Filing Jointly/IRA Contributor Covered by a workplace plan | $105,000 | $125,000 |
| Married Filing Jointly/IRA Contributor Not Covered but Spouse is | $198,000 | $208,000 |
What the above table shows is the modified adjusted gross income (MAGI) where the phase-out begins and ends. If you are under the beginning number, you get a full deduction. If you are over the ending number, you receive zero deduction. Lastly, if you fall in the middle of the range, you get a partial deduction. The amounts vary on your filing status, and whether or not you are covered by a workplace plan, such as a 401(k). There is an increase of $1,000-$2,000. Therefore, you can make a little more money next year and receive the deduction.
Roth IRA Income Restrictions
While a traditional IRA offer tax-deductible contributions for those who qualify, there is no deduction for Roth IRAs. This is because Roths are funded with after-tax money. However, all qualified distributions from a Roth are tax free during retirement. Traditional IRAs are taxable upon withdrawal. The caveat is that high-income earners cannot directly contribute to a Roth IRA. Much like the traditional phase-outs, there are phase-outs on the income limits for Roth IRAs as follows:
| Filing Status | Phase-out Begins | Phase-out Ends |
| Single Filers and Heads of Household | $125,000 | $140,000 |
| Married Filing Jointly | $198,000 | $208,000 |
Just like the traditional IRA deduction limits, if you are under the beginning number, you can make a full Roth IRA contribution. However, if you are above the income threshold, you cannot make a direct Roth IRA contribution. If you fall withing either range, you can make a partial contribution. The 2021 Roth IRA income limit is up $1,000 for single filers and $2,000 for married filers filing jointly.
Note that high earners can still get funds into a Roth by utilizing the backdoor Roth IRA strategy. You can simply contribute after-tax funds to a traditional plan and then convert that amount into a Roth at any time.
Saver’s Credit
The saver’s credit is an incentive for low- and moderate-income earners. This tax credit is provided to those people who save for retirement, who are under certain income thresholds. To receive the credit, your annual income must fall below $66,000 if you are married filing jointly (up $1,000 from 2020), $49,500 if you file as a head of household (up $750) or $33,000 if you are a single filer or married filing separately (up $500).
