Good news about 2021 IRA contribution limits? Not exactly…
I wish I could jump up and down and tell you that IRA contribution limits for 2021 have gone up tremendously and that you should be sure to take advantage of them. However, I cannot. Because inflation has been so low this year, there are not many changes. But that does not mean there are not opportunities for smart investors who act on this information quickly.
2020 to 2021 IRA Contribution Limit Changes
Compared to 2020, most retirement contributions are not changing in 2021. Maximum IRA contributions remain at $6,000, and 401(k) deferrals remain at $19,500.00. View all of the 2021 contribution limits.
One thing that has not changed is the intricacy of IRA deductions.
Factors that can dramatically affect deductions include:
- Income limits
- Marital status
- Your employment status, specifically whether you have in an employer retirement plan or are self-employed
Is a Roth IRA or Traditional IRA Better?
The one question that always comes up is, should I contribute to a Roth IRA or a Traditional IRA? While many factors contribute to making that decision, more likely than not, a Roth IRA will be the better long-term option if you are eligible. (I am writing this from years of experience and speaking to “most people,” so please make sure you consult with your tax advisor).
How Long Do I Have to Make a Contribution to My IRA for 2020?
This is where a little planning can go a long way. A majority of individuals wait until April 15th of the following year to make their IRA contributions. This has become the norm, but it is not the best financial planning move.
If you have the money, fund your IRA as soon as the new year begins. If you do not have the full contribution amount at the beginning of the year, start by making bi-weekly or monthly contributions. A few years ago, I wrote an article that is still true, showing the tremendous benefits of making an IRA contribution early vs. waiting until April 15th of the following year. Ed Slott, one of the nation’s IRA experts, has a quote I would like to share. He says, “Most people treat IRA Contributions like they’re paying a bill, [but] they should think about it as paying themselves.”
I always like the financial rule of paying yourself first. By making your IRA contribution as early as possible, you are setting yourself up for financial success.
There may be some good news and changes coming to retirement accounts. November 2020 saw a bipartisan bill introduced in the House to increase contributions and raise the age for required minimum distributions (RMD’s). The word bipartisan does not come up very often, so I think this may be good news. A summary of the bill is listed on CNBC’s website.
How Can Midland Help You Navigate IRA Contributions?
Midland is happy to help you with your IRA questions. We have many resources to share with you and many years of experience answering questions just like the ones you have right now. Please contact Midland by calling (239) 333-1032 or by visiting our website.
Author: Dave Owens, CPA, CES, is the President & CEO of Midland IRA. His comments act as guidance to help investors understand how to navigate and plan for IRA contributions.
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