IRS Announces New IRA Eligibility Income Ranges for 2021

As part of its ongoing cost-of-living adjustments, the IRS announced in early November 2020 several key updates to retirement-related savings accounts and pension plans. Find out what employers and employees can expect regarding IRA eligibility income ranges in 2021.

Income Range Adjustments for 2021

The IRS announced increases to the following actions for 2021: 

• Determining eligibility to make deductible contributions to traditional IRAs
• Making contributions to Roth IRAs
• Taking the Saver’s Credit

Updates to these ranges are detailed below

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: 

• $66,000 to $76,000: Single taxpayers covered by a workplace retirement plan – an increase of $1,000 from 2020
• $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
• $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
• $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: 

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

2021 Saver's Credit Income Limits

Taxpayers who want to claim the Saver’s Credit must not exceed the following income caps:

• $66,000: Married taxpayers who file jointly – an increase of $1,000 from 2020
• $49,500: Head of household – an increase of $750 from 2020
• $33,000: Single taxpayers and married individuals filing separately – an increase of $500 from 2020

What Else Should HR and Employers Know?

In October 2020, the IRS announced contribution limit updates for 401(k) plans and other retirement savings accounts. Additionally, one month earlier, the IRS announced new SECURE Act guidance to expand retirement savings access and eligibility for part-time workers and new parents. 

Each of these updates should be communicated to employees before the beginning of the new year. HR should consider reaching out to the company’s retirement plan administrator for additional guidance moving forward into 2021.