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Annual Retirement Savings & Tax Guide: The 'Cheat Sheet'

Family

At the start of a new year, our wealth advisors are typically asked about contribution limits to everything from 401(k) plans and Individual Retirement Accounts to Medicare as well as health savings accounts. 

A favorite tool we've found to help clients of all ages and tax brackets is a comprehensive set of tables compiled by the College for Financial Planning. The college has given Index Fund Advisors authorization to republish these graphics. It has also provided us with support from Mike Harris, a professor and chairman of the college's retirement studies department. 

Below is a breakdown with some key changes in 2021's list as highlighted by Harris. It can act as a sort of 'cheat sheet' for you to discuss different financial and investment-related matters with one of IFA's advisors. John Dahlin, who heads up IFA Taxes, might also be a good resource in reference to reviewing changes in tax and savings contribution rates. He's an experienced Certified Public Accountant (CPA) who works with both business owners and individual taxpayers on issues ranging from tax preparation to bookkeeping and quarterly payroll planning. 

Retirement Plans

This year, elective deferrals to workplace retirement savings programs such as 401(k) and 403(b) plans are remaining at $19,500 a person for those under the age of 50. For those aged 50 and up, a worker can contribute an additional $6,500, setting total contributions for $26,000 in 2021. 

Also of note: IRA and Roth IRA contribution limits remain the same this year ($6,000 for individuals under the age of 50 with an added catch-up contribution of $1,000 allowed for those 50 or older). Meanwhile, SIMPLE plan contributions stayed at $13,500 in 2021 with the catch-up (50 or older) remaining at $3,000 per person. 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Social Security

In 2021, the taxable wage base went up to $142,800 from $137, 700 in the previous year. Another notable change was an increase to $3, 148 in the maximum monthly benefit for a worker retiring at full retirement age (FRA). Last year, that monthly limit topped out at $3,011. While Social Security's annual cost-of-living adjustment increased by 1.3%, that was a drop from 2020's 1.6% adjustment. (Note: FICA refers to the Federal Insurance Contributions Act and SECA is the Self Employed Contributions Act. Also, FRA stands for "Full Retirement Age.") 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Estate & Gift Tax

The annual gift tax exclusion remains at $15,000 and the maximum estate tax rate stayed at 40%. But the estate and gift tax exclusion rose to $11.70 million from $11.58 million. Also, the applicable credit amount increased a bit to $4,625,800 from $4,577,800. 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Medicare

In general, the Part A monthly premiums jumped to a maximum of $471 (from $458) in 2021 and the base Part B monthly premium rose to  $148.50 (from $144.60). Skilled nursing care costs went up slightly in some cases, as did the Part B deductible ($203 vs. $198 in 2020). In terms of Part D, the deductible went up to $445 (from $435) and the out-of-pocket threshold increased to $6,550 in 2021 as opposed to the previous year's $6,350. 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Health Savings Account

The minimum deducticle amount for a single saver remains the same in 2021 at $1,400. For a family, it's still set at $2,800. The maximum out of pocket amount has risen some ($100 more this year to $7,000 for a single person and $200 more to $14,000 for a family). The HSA statutory contribution maximum is also higher for a single saver ($3,600 vs. $3,550 in the previous year) and a family ($7,200 vs. $7,100). The catch-up contribution, however, for those age 55 or older stays at $1,000 in 2021. 


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Education

The phaseout levels for tax savings on a Coverdell Education Savings Account, both for single taxpayers as well as those who are married and filing jointly stayed the same in 2021. Those are: $95,000-$110,000 for single and $190,000-$220,000 for people who are married and filing jointly. As shown in the table below, those phaseout ranges the Lifetime Learning Credit increased in 2021 to $80,000-$90,000 for individuals (from $59,000-$69,000 in 2020) and $160,000-180,000 for those married and filing jointly (as opposed to $118,000-$138,000 in the previous year). Also, the exclusion phaseout for EE bonds used for education for single tax filers went to $83,200-$98,200 (from $82,350-$97,350 in 2020). For those married filing jointly, the exclusion phaseout for EE bonds rose to $124,800-$154,800 (from $123,550-$153,550).


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Income Taxes & Schedules


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.

Other Items of Interest


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


Source: College for Financial Planning. Informational use only. Not intended to be tax advice.


This is intended to be informational in nature and should not be construed as an offer, solicitation, recommendation, endorsement of any security, or tax advice. As a division of Index Fund Advisors, Inc., IFA Taxes provides a wide array of tax planning, accounting and tax return preparation services for individuals and businesses across the United States. IFA Taxes does not provide auditing or attestation services and therefore is not a licensed CPA firm. IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. Federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter herein.

For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.