Planning for Success: 2021 IRA Contribution ✓

Tax Day is swiftly approaching with this year’s deadline of April 18^th.  While this time of year can be daunting, we are here to make it a little bit easier.  

There is still time to contribute to your Individual Retirement Account (IRA) for the 2021 tax year.  You have until April 18^th to contribute the maximum amount to either a traditional IRA or Roth IRA for it to be eligible as a 2021 tax year contribution.  It is important that your custodian appropriately marks the tax year of contribution.  For instance, if you have not contributed or reached the maximum contribution amount for 2021, you can identify your contribution for either the 2021 or 2022 tax year.  It would be wise to mark the contribution as 2021, so you will still be able to contribute for the 2022 tax year. 

Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s defined benefit plan.

Traditional IRA Contribution Limits:

·         Up to age 50: $6,000

·         Catch-up Contribution age 50+: $1,000

·         Total Contribution if over the age of 50: $7,000

Traditional IRA Modified Adjusted Gross Income Limits

·         Single Active Participant: $68,000 to $78,000

·         Married Active Participant, Filing Joint Tax Return: $109,000 to $129,000

·         Married Active Participant, Filing Separate Tax Returns: $0 to $10,000

·         Spouse of an Active Participant: $204,000 to $214,000

Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Roth IRA Contribution Limits:

·         Up to age 50: $6,000

·         Catch-up Contributions age 50+: $1,000

·         Total Contribution if over the age of 50: $7,000

Roth IRA Contribution Limits MAGI Phase-out Ranges:

·         Single Individuals: $129,000 to $144,000

·         Married, Filing a Joint Tax Return: $204,000 to $214,000

·         Married, Filing Separate Tax Returns: $0 to $10,000

Roth IRA Qualified Distribution Requirements:

·         Made on or after the date you turn 59 ½

·         Taken because of a permanent disability

·         Made by a beneficiary or your estate after your demise

·         Used to buy, build, or rebuild your first home (a $10,000 lifetime maximum applies)

Keep in mind that the five-year rule applies regardless of your age when you opened the Roth IRA.  For example, if you are 60 years old when you make your first contribution, you would still need to wait to withdraw until you are 65 years old to avoid taxes. The clock starts ticking on January 1^st of the year you made your first contribution to the Roth IRA. 

It is important to note that the limits for Roth and traditional IRAs are a combined limit for both accounts. Remember that catch-up contributions allow investors over age 50 to contribute an additional amount each year.

There are a few benefits of splitting your contributions between a traditional IRA and Roth IRA.  For instance:

·         If you are eligible for only a partial deduction on your traditional IRA then instead of contributing the nondeductible amount to a traditional IRA, in which earnings grow tax-deferred, you could contribute that amount to a Roth IRA instead, in which earnings grow tax-free.

·         If you are eligible for only a partial Roth IRA contribution to maximize your contribution for the year, you could contribute the difference to your traditional IRA. These combined contributions should not exceed the IRA contribution limit.

Spousal IRAs:

·         If neither you nor your spouse participate in a tax-favored retirement plan through a job or self-employment, then you and your spouse can each make a deductible traditional IRA contribution of up to $6,000, regardless of your joint AGI level.  Do not forget the catch-up contribution (age 50+) then you could contribute up to $7,000.  The only limitation is that you must have enough earned income to at least match the combined amount of your contributions.    

·         If the working spouse participates in a tax-favored retirement plan, then your spouse’s ability to make a deductible traditional IRA contribution for the 2022 tax year is phased out between a joint AGI of $109,000 and $129,000.

Other Self-directed Retirement Account

In addition to traditional and Roth IRAs, every tax-advantage account is subject to contribution limits:

Simple IRA Contribution Limits:

·         Employee Elective Deferrals: $14,000

·         Catch-up Elective Deferral Contribution Age+: $3,000

SEP IRA Contribution Limits:

·         SEP Employer Contribution Limits: Up to 25% of compensation (max of $61,000)

401(k) Contribution Limits:

·         Employer Contributions: Up to $61,000

·         Employee Elective Deferrals: Up to $20,500

·         Catch-Up Elective Deferral Contribution Age 50+: Up to $6,500

While we are not licensed tax professionals, we value our relationships with industry leading tax attorney’s and CPA’s to better serve you and your family.  Together, we can develop a plan to best achieve your goals and desires.  We at Coral Gables Trust stand apart by developing relationships with you and your family that lasts not only for your lifetime, but the lifetime of your children.  Furthermore, we are here to serve your entire family.  As always, we welcome the opportunity to review your investment portfolio and estate planning documents to make sure the appropriate strategi