Hi 

 

You know that if you make “too much money” you can’t contribute to a Roth IRA.  Most people don’t realize that your ability to contribute to a standard IRA has phase-out limits, similar to the phase-out limits on a Roth IRA.  Below are the 2021 phase-out limits for a traditional IRA and a Roth IRA.

2021 Traditional IRA Phase-out Ranges

Employees covered by work-sponsored retirement plans are permitted to deduct traditional IRA contributions if they meet certain criteria. Likewise, this deduction can be reduced or phased out until the deduction is eliminated. Deductions are dependent on the employee’s filing status and their income, and include: 

• AGI of $66,000 to $76,000: Single taxpayers covered by a workplace retirement plan – an increase of $1,000 from 2020
• AGI of $105,000 to $125,000: Married couples filing jointly (applicable when the spouse making the IRA contribution is covered by a workplace retirement plan) – an increase of $1,000 from 2020
• AGI of $198,000 to $208,000: A taxpayer who isn’t covered by a workplace retirement plan but is married to someone who's covered – an increase of $2,000 from 2020
• AGI of $0 to $10,000: A married taxpayer who’s filing a separate return (applicable to taxpayers covered by a workplace retirement plan) – remains unchanged from 2020

2021 Roth IRA Phase-out Ranges

For taxpayers making contributions to Roth IRAs, the following ranges now apply: 

• AGI of $125,000 to $140,000: Single taxpayers and heads of household – an increase of $1,000 from 2020
• AGI of $198,000 to $208,000: Married taxpayers who file jointly – an increase of $2,000 from 2020
• AGI of $0 to $10,000: Married taxpayers who file separately – remains unchanged from 2020

Remember that you can contribute to a traditional IRA and then turn right around and pay the tax in order to convert it to a Roth IRA.  This is also true for a standard 401(k) and then a conversion to a Roth 401(k). 

2020 year may be a good year to make a conversion from a traditional IRA or standard 401(k).  You’ll have to pay the tax, but Biden has sworn that he will raise taxes, so it may be cheaper to pay that tax and make the conversion today than it will be in future years. 

Ben and I will hold the Tax Summit on Friday, December 4 from 9:00 AM to 1:00 PM Mountain Standard Time, to help you make the transition from this year to next year and keep as much of your hard-earned money as possible.  You can sign up here.