Every year, the Internal Revenue Service announces cost-of-living adjustments that affect contribution limits for retirement plans and various tax deduction, exclusion, exemption, and threshold amounts. Here are a few of the key adjustments for 2021.
Estate, Gift, and Generation-Skipping
Transfer Tax
- The annual gift tax exclusion (and annual generation-skipping transfer tax exclusion) for 2021 is $15,000, the same as in 2020.
- The gift and estate tax basic exclusion amount (and generation-skipping transfer tax exemption) for 2021 is $11,700,000, up from $11,580,000 in 2020.
Standard Deduction
A taxpayer can generally choose to itemize certain deductions or claim a standard deduction on the federal income tax return. In 2021, the standard deduction is:
- $12,550 (up from $12,400 in 2020) for single filers or married individuals filing separate returns
- $25,100 (up from $24,800 in 2020) for married individuals filing joint returns
- $18,800 (up from $18,650 in 2020) for heads of households
The additional standard deduction amount for the blind or aged (age 65 or older) in 2021 is:
- $1,700 (up from $1,650 in 2020) for single filers and heads of households
- $1,350 (up from $1,300 in 2020) for all other filing statuses
Special rules apply if you can be claimed as a dependent by another taxpayer.
IRAs
The combined annual limit on contributions to traditional and Roth IRAs is $6,000 in 2021 (the same as in 2020), with individuals age 50 and older able to contribute an additional $1,000. The limit on contributions to a Roth IRA phases out for certain modified adjusted gross income (MAGI) ranges. For individuals who are covered by a workplace retirement plan, the deduction for contributions to a traditional IRA also phases out for certain MAGI ranges. (The limit on nondeductible contributions to a traditional IRA is not subject to phase-out based on MAGI.)
MAGI Ranges: Contributions to a Roth IRA” |
||
|---|---|---|
| 2020 | 2021 | |
| Single/Head of household | $124,000-$139,000 | $125,000-$140,000 |
| Married filing jointly | $196,000-$206,000 | $198,000-$208,000 |
| Married filing separately | $0-$10,000 | $0-$10,000 |
MAGI Ranges: Contributions to a Traditional IRA |
||
| 2020 | 2021 | |
| Single/Head of household | $65,000-$75,000 | $66,000-$76,000 |
| Married filing jointly | $104,000-$124,000 | $105,000-$125,000 |
| The 2021 phaseout range is $198,000-$208,000 (up from $196,000-$206,000 in 2020) when the individual making the IRA contribution is not covered by a workplace retirement plan but is filing jointly with a spouse who is covered. The phaseout range is $0-$10,000 when the individual is married filing separately and either spouse is covered by a plan. | ||
Employer Retirement Plans
- Employees who participate in 401(k), 403(b), and most 457 plans can defer up to $19,500 in compensation in 2021 (the same as in 2020); employees age 50 and older can defer up to an additional $6,500 in 2021 (the same as in 2020).
- Employees participating in a SIMPLE retirement plan can defer up to $13,500 in 2021 (the same as in 2020), and employees age 50 and older can defer up to an additional $3,000 in 2021 (the same as in 2020).
Kiddie Tax: Child’s Unearned Income
Under the kiddie tax, a child’s unearned income above $2,200 in 2021 (the same as in 2020) is taxed using the parents’ tax rates.
IMPORTANT DISCLOSURES
Wellspring Financial Partners, LLC does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
