The year 2020 is coming to an end – a year of forced change, unwanted adjustments and re-learning many different aspects of our lives. Americans know how to work hard and we also know how to play hard. In fact, one of the most difficult aspects of the global pandemic has been our inability to do whatever we can afford to do, whenever we want to do it. One of the upsides of the inability to travel and spend money has been that many families who were blessed to stay employed have experienced significant adjustments to their leisure spending. These reduced expenditures have created an opportunity for us to view these unfortunate lifestyle changes as a chance to beef up our retirement savings.
If you have not been fully contributing to your 401k, then 2021 will, perhaps, be the year for you to take advantage of your inability to spend and sock away a little extra. The IRS has just scheduled their 2021 retirement plan contribution limitations at irs.gov:
The limit on contributions by employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $19,500.
The catch-up contribution limit for employees aged 50 and over who participate in these plans remains unchanged at $6,500.
The limitation regarding SIMPLE retirement accounts remains unchanged at $13,500.
The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
These updates have remained basically unchanged from 2020, but the government has been kind enough to increase our phase-out income ranges for contribution to both an employer retirement plan and our Roth IRAs. The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000 – $140,000 for singles and heads of household (up from $124,000 – $139,000). Married couples who file jointly have had their income phase-out range increased from $198,000 – $208,000 (up from $196,000 – $206,000.)
With coronavirus vaccines being produced by Pfizer and Moderna currently showing great promise, 2021 is going to be a year of transition. We are all hopeful that by 2022, life could get back to normal. In the meantime, let’s make the New Year on the horizon one in which we strategically and systematically put money away for retirement. At the end of 2021, I want to look back and reflect on a year of fun and normalcy. If that doesn’t end up being possible, at least we can open up our year-end investment statements and, hopefully, feel good about making prudent decisions during our time of restraint.
From the OLV family to yours, have a Merry Christmas and Happy Holidays!