2021 Tax Updates and CARES Act Impacts
As the COVID-19 pandemic continues to impact our daily lives and the U.S. economy, many of those reaching retirement age are questioning whether now is the time to consider retirement or not. If you’re considering retirement or reviewing your retirement assets like IRAs and 401(k) accounts, it’s important to keep in mind upcoming contribution changes for 2021 and special rules for retirement plans as part of the CARES Act.
Here is what you need to know:
The U.S. Treasury Department recently announced inflation-adjusted figures for retirement account savings for 2021. Keep in mind:
- The amount you can save for retirement in tax-advantaged accounts has increased from $57,000 to $58,000 in 2021. Don’t forget, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season!
- IRA contribution limits are flat at $6,000, with a $1,000 catch-up limit if you’re 50 or older.
- If your employer allows aftertax contributions to your 401(k), you also get the advantage of the new $58,000 limit for 2021.
- You can earn a little more in 2021 and get to deduct your contributions to a traditional pretax IRA. Keep in mind, even if you earn too much to get a deduction for contributing to an IRA, you can still contribute—it’s just nondeductible.
- Check out this Forbes article for more details on the changes.
The CARES Act provides special distribution options and rollover rules for retirement plans and IRAs and expands permissible loans from certain retirement plans.
- The most important consideration is for those who took a coronavirus-related distribution from eligible retirement plans in 2020. If you completely repay your plan within three years after the date that the distribution was received, you do not owe federal income tax on the distribution.
- The 10% additional tax on early distributions does not apply to any coronavirus-related distribution.
- Learn more about what is considered a coronavirus-related distribution and additional CARES Act retirement impacts here.
As always, our team of trusted tax professionals at Lodovico & Associates are ready to support your tax-related retirement needs. If you’re considering retirement or have questions about your options, don’t hesitate to contact us.