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Bad news for super savers

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Each year, the IRS adjusts the maximum amount that taxpayers can contribute to tax-advantaged retirement savings plans to reflect the increased cost of living. Unfortunately, inflation was so low in 2020 that the maximum you can contribute to tax-advantaged retirement savings accounts is unchanged for 2021. Here’s how it breaks down:

Employer-sponsored retirement savings plans. The maximum you can store in 401 (k) s, Roth 401 (k) s, and other employer plans in 2021 is $ 19,500. The catch-up contribution for people aged 50 and over is $ 6,500.

Traditional or Roth IRAs. The maximum you can contribute to an IRA in 2021 is $ 6,000. The catch-up contribution for savers aged 50 and over remains at $ 1,000.

There is a glimmer of good news: The IRS has increased the amount of money workers covered by an employer-sponsored plan can earn in 2021 and continues to deduct IRA contributions. (There is no income threshold for people who are not covered by an employer plan; they can deduct the maximum allowed.)

Single taxpayers who are covered by a 401 (k) pension plan or other workplace retirement plan can deduct their entire contribution to an IRA if their income is $ 66,000 or less; the deduction gradually disappears until income reaches $ 76,000. This drops from $ 65,000 to $ 75,000 in 2020. For married couples filing jointly, if the IRA contributing spouse is covered by a workplace pension plan, the elimination range is 105,000. $ to $ 125,000, up from $ 104,000 to $ 124,000.

If one spouse is covered by an employer-provided plan and the other is not, the second spouse can deduct IRA contributions if the couple’s joint income is between $ 198,000 and $ 208,000, compared to $ 196,000 and $ 206,000 in 2020.

The IRS has also adjusted the amount of money you can earn while contributing to a Roth IRA. Roth contributions are not deductible, but as long as you’ve owned your Roth for at least five years and are 59 and a half or older, withdrawals are tax-free. Singles with a modified adjusted gross income (MAGI) of less than $ 125,000 (up from $ 124,000 in 2020) can make the maximum contribution to a Roth. The amount gradually increases to $ 140,000 (instead of $ 139,000). Married couples who file jointly can make the maximum contribution if their MAGI is less than $ 198,000, gradually increasing to $ 208,000 (from $ 196,000 to $ 206,000).

There is no income limit for converting a Traditional IRA to a Roth (see Your Guide to Roth Conversions).

The most you can put in a health savings account is increasing in 2021, but not by much. In 2021, you can save $ 3,600 for individual coverage, compared to $ 3,550 in 2020. For family coverage, you can save up to $ 7,200, compared to $ 7,100 in 2020. The maximum catch-up contribution for persons aged 50 and over remains unchanged at $ 1,000. for individual and family accounts.

HSAs are a powerful way to save for personal medical expenses. Contributions are pre-tax (or deductible if your HSA is not sponsored by the employer), funds grow tax-deferred in the account, and withdrawals are tax-free for qualifying medical expenses. If you don’t use the money, you can carry it over for years to come. An HSA is also a smart way to save for medical bills in retirement.

To be eligible for an HSA, you must be enrolled in a high deductible health insurance plan; requirements remain unchanged for 2021. Your plan must have a deductible of at least $ 1,400 for single coverage or $ 2,800 for family coverage.

Your plan must also have a refundable coverage limit to be eligible for an HSA, and those thresholds increase slightly in 2021. Individual policies must have a limit of $ 7,000 for individual coverage, up from $ 6,900 in 2020. For the family plans, the maximum is $ 14,000, up from $ 13,800 in 2020.

Thanks to the CARES (Coronavirus Aid, Relief and Economic Security) law promulgated in early 2020, more medical expenses are eligible for tax-free withdrawals. You can use the money in your HSA to pay for over-the-counter medications, such as aspirin and cough syrup, without a doctor’s prescription. You can also use the money to pay for tampons, sanitary napkins, and other feminine hygiene products.

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