Hot Off the Press – Important Tax Numbers for 2021November 14th, 2020 by Jim Allen
As 2020 winds down, we start to look towards planning for 2021. Hopefully, next year will be a little more normal and the COVID pandemic will start to ease and the economy can recover. While we do not know how 2021 will unfold, we do know what some of the tax thresholds will be, as the IRS has released their 2021 numbers.
IRAs & Roth IRAs – The 2021 maximum contribution to an IRA (both traditional & Roth) will remain at $6,000 next year. The $1,000 catch up amount for people over age 50 also remains unchanged.
401(k) & similar retirement plans – The maximum amount of salary deferral that you can make to a 401(k), 457 and other types of retirement plans remains unchanged at $19,500. Those over age 50 can also contribute up to another $6,500 as a catch-up contribution.
Social Security Cost of Living Increase – If you are receiving Social Security retirement benefits, your monthly payment will increase next year by 1.3%. So, if your benefit is $2,000 per month, you will see a $26 increase in 2021.
Maximum Social Security Contribution Limit – The maximum income level where you have to pay the 6.2% Social Security retirement tax is increased to $142,800 next year. Once that threshold is reached, you no longer have to withhold Social Security tax. However, the 1.45% Medicare portion of the Social Security tax does not have a threshold and has to be paid regardless of your income.
Estate & Gift Tax Changes – The $15,000 per person gift tax exclusion remains unchanged while the unified estate and gift tax exemption is increased by $120,000 to $11,700,000. With the exemption at such high levels, the vast majority of people do not need to worry about estate or gift tax. A married couple would need to have an estate of over $23,400,000 before the estate tax would apply.
We have just completed the Presidential election and it looks as if we will (potentially) have a new president on January 20th, 2021. However, we still do not know the make up of the Senate as there is a runoff for both Senate seats in Georgia. Depending on the results of that election, we could have a gridlocked legislature or a democratic controlled legislature. Therefore, we do not know what to expect in terms of tax changes going forward. We will continue to keep you updated as the political picture becomes more settled.
Jim Allen, CFP, ChFC, CDFA is the Director of Financial Planning and a Principal at Anchor Bay Capital. In addition to his 30 years of financial planning experience and his professional credentials, he holds a Master’s Degree in Financial Planning and is a former instructor in the CFP program at the University of California Irvine. He is also the co-author of the book “The Tools & Techniques of Charitable Planning.” Jim can be reached at [email protected]