Self-Directed IRA Blog | Investment and Retirement News from Entrust

Cost of Living Adjustments in 2021 and How They Affect Your IRA

Written by The Entrust Group | Jan 26, 2021

Estimated reading time: 2 minutes

Cost of living adjustments (COLAs) are made each year as a result of inflation. COLAs typically reflect the increase in percentage of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Specifically, they’re an increase to Supplemental Security Income and Social Security to counteract the effects of inflation.

COLAs are announced by the IRS every fall. The amount you can contribute to your IRA or deduct on your tax return can change based on the year’s COLAs. For tax year 2021 some contribution limits have changed from 2020, but many have not.

Traditional IRAs

The annual contribution limit remains $6000, but the income limits that determine the tax deductibility of the contributions you make to your Traditional IRA have increased.

Traditional IRA Contribution Limits 2020 2021
Up to age 50 $6,000 $6,000
Catch-Up Contributions Age 50+  $1,000 $1,000
Total Contribution if Over the Age of 50  $7,000 $7,000

 

Traditional IRA Modified Adjusted Gross Income (MAGI) Limits 2020 2021
Single Active Participant  $65,000 to $75,000 $66,000 to $76,000
Married Active Participant, Filing Joint Tax Return $104,000 to $124,000 $105,000 to $125,000
Married Active Participant, Filing Separate Tax Returns $0
to $10,000
$0
to $10,000
Spouse of an Active Participant  $196,000 to $206,000 $198,000 to $208,000

 

Roth IRAs

The annual Roth IRA contribution limit is still $6000. However, the income limits have increased.

Roth Contribution Limits 2020 2021
Up to age 50 $6,000 $6,000
Catch-Up Contributions Age 50+  $1,000 $1,000
Total Contribution if Over the Age of 50  $7,000 $7,000

 

Roth IRA MAGI Phase-Out Ranges 2020 2021
Single Individuals $124,000 to $139,000 $125,000 to $140,000
Married, Filing a Joint Tax Return  $196,000 to $206,000 $198,000 to $208,000
Married, Filing Separate Tax Returns 

$0
to $10,000

$0
to $10,000

 

SEP IRAs

2021 SEP IRA contribution limits and compensation thresholds increased from 2020.

  2020 2021
SEP Employer Contribution Limits Up to 25% of compensation, with a maximum of $57,000 Up to 25% of compensation, with a maximum of $58,000
SEP Current Year Minimum Compensation Required $600 $650

 

SIMPLE IRAs

The contribution limits for SIMPLE IRAs stay the same as the year before for 2021.

SIMPLE IRA Contribution Limits 2020 2021
Employee Elective Deferrals $13,500 $13,500
Catch-Up Elective Deferral Contribution Age 50+  $3,000 $3,000
Your employer can elect from two different contribution methods. Check with your employer which option they have chosen. Employer contributions are in addition to your elective deferrals.

 

Want to learn more about contribution limits and reporting IRA transactions? Check out Tax Returns: How to Report IRA Transactions.