There’s Still Time To Contribute To Your IRA for 2021

There’s Still Time To Contribute To Your IRA for 2021

If you haven’t yet made a contribution to your IRA for 2021, you still have time. The deadline is the same as the tax-filing deadline: April 18, 2022. What’s more, if you plan to make a contribution by that date, you may be able to claim the deduction on your 2021 tax return.

 

Know Your Traditional IRA

An Individual Retirement Account (IRA) is a tax-advantaged personal savings plan that lets you set money aside for retirement. Generally, you can contribute up to $6,000 to your IRA for 2021. If you were 50+ by December 31, 2021, you can add another $1,000 to that limit. Depending on your status, your contributions to one or more traditional IRAs may be deductible up to the contribution limit or 100% of your compensation, whichever is less.

If you make contributions to employer retirement plans, such as a 401(k) or 403(b), an IRA, or an Achieving a Better Life Experience (ABLE) account, may also be able to claim the Saver’s Credit. Also known as the Retirement Savings Contributions Credit, the amount of the credit is generally based on the amount of your contributions, your adjusted gross income and your filing status (see the chart below).

 

Know Your Roth IRA

While you may contribute to a Roth IRA, you cannot deduct those amounts. However, any qualified distributions you take at retirement age are tax-free. Note that Roth IRA contributions may be limited based on your filing status and income.

Please don’t hesitate to call us at 706-632-7850 with any questions. 

 

March 25th Deadline

March 25 is the last day we can accept materials to file your Personal Tax Return by the April 18 due date. If you’re running late, we’ll be happy to file an extension for you. Please bring your paperwork to our office during regular business hours, or drop it off in our after-hours dropbox. Our 2021 Personal Tax Preparation Checklist will help make sure you provide everything we need.

Remove Excess Salary Deferrals by April 15, 2022

If you contribute to a retirement plan at work, you are allowed a total of $19,500 (plus an additional $6,500 if age 50+) in salary deferrals. If you exceeded this limit in 2021, however, you must withdraw any excess deferral amounts, plus earnings, by April 15, 2022.

If you withdraw the excess salary deferrals, plus earnings, by April 15:

  • Excess deferrals are taxed in the calendar year deferred (2021).
  • Earnings on the excess are taxed in the year withdrawn (2022).
  • Excess is not subject to the 10% early distribution tax, 20% withholding, or spousal consent requirements.

If you do NOT withdraw the excess salary deferrals, plus earnings, by April 15:

  • Excess deferrals are taxed in the calendar year deferred (2021) and again in the year withdrawn.
  • Earnings on the excess are taxed in the year withdrawn.
  • Withdrawals may be subject to the 10% early distribution tax, 20% withholding, and spousal consent requirements.

If you made contributions to more than one retirement plan, you may have accidentally gone over the limit. If you’re not sure, contact us today for help determining this amount.

Retirement and Taxes: Understanding Your IRA

Retirement and Taxes: Understanding Your IRA

Retirement may be closer than you think — especially if you’re saving money now just for that purpose. An Individual Retirement Arrangement (IRA) can be a smart way to save because it provides tax incentives to help you on your path. And IRAs are easy to set up with a bank or other financial institution, a life insurance company, a mutual fund or a stockbroker.

What You Need to Know About IRAs

If you have a Traditional IRA, you may be able to deduct your contributions from your taxes. Also, the interest and dividends earned in a Traditional IRA are not taxed until you withdraw them, typically when you’re retired and in a lower tax bracket.

If you have a Roth IRA, you are subject to similar restrictions as with a Traditional IRA. However, you cannot deduct your contributions. But qualified distributions from a Roth IRA are typically tax-free. And Roth IRAs do not require withdrawals until after the death of the owner.

 A SIMPLE (Savings Incentive Match Plan for Employees) IRA or SEP (Simplified Employee Pension ) IRA can be set up for employees and employers to make contributions. These are often popular with smaller businesses. Ask your employer if one is available.

A CONTRIBUTION is the money that you put into your IRA. There are annual limits to the amount you can contribute depending on your age, income and type of IRA (see below for new 2022 limits).

A DISTRIBUTION is the amount you withdraw from your IRA. Keep in mind that you may face a 10% penalty and a tax bill if you withdraw money from your IRA before you turn 59½, unless you qualify for an exception. There are also required distributions from an IRA — in most cases, you generally must start taking withdrawals when you reach age 70½.

If you have one or more IRAs, you’ll need to let us know how much you contributed and/or withdrew during the year when we file your taxes next spring. Be sure to keep all the important paperwork related to your accounts. If you have any questions, we’ll be happy to help — just contact us here.

Retirement Plan Limits Increase for 2022

Due to cost-of-living adjustments, retirement plan contributions are increasing for tax year 2022. For example, the amount you can contribute to your 401(k) plan for 2022 will increase to $20,500, up from $19,500 for 2020 and 2021. This also includes 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. The amount you can contribute to a SIMPLE retirement account increased to $14,000, up from $13,500.

The income phase-out ranges for deductible Traditional IRA contributions are increasing for 2022:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range increases to $68,000-$78,000, up from $66,000-$76,000.
  • For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, to $109,000-$129,000, up from $105,000-$125,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, to $204,000-$214,000, up from $198,000-$208,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, it remains $0-$10,000.

The income phase-out range for Roth IRA contributions is increasing:

  • For singles and heads of household, to $129,000-$144,000 up from $125,000-$140,000.
  • For married couples filing jointly, to $204,000-$214,000, up from $198,000-$208,000.
  • For a married individual filing a separate return, it remains $0-$10,000.

The income limit for the Saver’s Credit (Retirement Savings Contributions Credit) for low- and moderate-income workers is increasing:

  • To $68,000 for married couples filing jointly (up from $66,000).
  • To $51,000 for heads of household (up from $49,500).
  • To $34,000 for singles and married individuals filing separately (up from $33,000).

Know Your Contribution Limits

The limit on the amount you can contribute annually to your IRA remains unchanged at $6,000. The IRA catch-up contribution limit for those age 50+ also remains at $1,000. The catch-up contribution limit for employees age 50+ for 401(k), 403(b), most 457 plans, and the Thrift Savings Plan remains unchanged at $6,500. Therefore, those 50+ can contribute up to $27,000 starting in 2022. The catch-up contribution limit for employees age 50+ and for SIMPLE plans also remains unchanged at $3,000.

Are You Eligible for the ODC?

The Credit for Other Dependents (ODC) is a tax credit for qualifying dependents who can’t be claimed for the Child Tax Credit. The maximum credit amount is $500 for dependents who meet these conditions:

  • Age 17 or older.
  • Have individual taxpayer identification numbers or Social Security numbers.
  • Are dependent parents or other qualifying relatives you support.
  • Are living with you but are not related to you.

You can claim this credit if:

  • You claim the person as a dependent on your tax return.
  • You cannot use the dependent to claim the Child Tax Credit or Additional Child Tax Credit.
  • The dependent is a U.S. citizen, national or resident alien.

You can claim the Credit for Other Dependents in addition to the Child and Dependent Care Credit and the Earned Income Credit. Note that the credit begins to phase out, however, when your income is more than $200,000 ($400,000 for married filing jointly).

Let us know if you support other dependents in your household, and we’ll help you determine which credits apply on your next tax return.

IRS Video Tax Tip

If you have taxable income from any payer that doesn’t withhold tax for you, check out this IRS video to see if you need to make estimated tax payments.

Need to Know: 2021 Retirement Plan Income Ranges and Tax Brackets Adjusted for Inflation

Need to Know: 2021 Retirement Plan Income Ranges and Tax Brackets Adjusted for Inflation

Each year, the IRS adjusts income thresholds, deduction amounts and tax tables for inflation using the Chained Consumer Price Index (C-CPI) as the basis for its changes. The adjustments recently announced will affect your 2021 deduction limits and tax brackets (for returns filed by April 2022).

You can deduct contributions to a traditional IRA if you meet certain conditions, including income limitations and whether you or your spouse are covered by a retirement plan at work. For 2021, you will see a small increase in your income limits for IRAs and Saver’s Credits (retirement savings contributions credits). Most other employee retirement plan contribution limits will remain the same, however. Note that IRA contribution limits remain unchanged at $6,000, as does the additional catch-up contribution limit of $1,000 if you’re 50+.

Traditional IRA Income Phaseout Ranges for 2021:

  • $66,000-$76,000: Single taxpayers covered by a workplace retirement plan.
  • $105,000-$125,000: Married couples filing jointly (when the spouse making the IRA contribution is covered by a workplace retirement plan).
  • $198,000-$208,000: Married couples filing jointly (when the taxpayer not covered by a workplace retirement plan is married to someone who is covered).
  • $0-$10,000: Married filing a separate return (when covered by a workplace retirement plan).

Roth IRA Income Phaseout Ranges for 2021:

  • $125,000-$140,000: Single taxpayers and heads of household.
  • $198,000-$208,000: Married couples filing jointly.
  • $0-$10,000: Married filing separately.

Saver’s Credit Income Limits for 2021:

  • $66,000: Married couples filing jointly.
  • $49,500: Head of household.
  • $33,000: Singles and married individuals filing separately.

Other Contribution Limits Unchanged for 2021

If you participate in a 401(k), 403(b) or 457 plan, or a federal Thrift Savings Plan, your contribution limit remains unchanged from 2020 at $19,500. If you’re age 50+, your catch-up contribution limit also remains unchanged at $6,500.

The limits for SIMPLE retirement accounts also remain unchanged at $13,500.

Tax Tables Adjusted for Inflation

For 2021, the top marginal income tax rate of 37% will affect taxpayers with taxable incomes of $523,600 and higher for single filers and $628,300 and higher for married couples filing jointly (see table below). Meanwhile, the Standard Deduction will increase to $25,100 for married individuals filing jointly or surviving spouses, $18,800 for heads of household, and $12,550 for unmarried individuals and married individuals filing separately.

The maximum Earned Income Tax Credit in 2021 for single and joint filers is $543 if the filer has no children, $3,618 for one child, $5,980 for two children, and $6,728 for three or more children. The maximum amount of the adoption credit increases to $14,440 (up from $14,300).

Exemption amounts for the alternative minimum tax will be $114,600 for married individuals filing jointly and surviving spouses, $73,600 for unmarried individuals, $57,300 for married individuals filing separately, and $25,700 for estates and trusts (all increased from 2020).

The qualified business income threshold under Sec. 199A will increase to $329,800 for married individuals filing jointly, $164,925 for married individuals filing separately, and $164,900 for single individuals and heads of household.

The annual gift tax exclusion remains at $15,000. The basic exclusion amount for determining the unified credit against the estate tax will increase to $11,700,000 for decedents dying in calendar year 2021.

Make Your Appointment Now

We’re currently taking appointments — both in-person and virtually — for year-end tax planning assistance. Contact Amber today (see box above) to set up your appointment. We can help you get ready to file your 2020 taxes, as well as plan ahead for 2021.

Source: Tax Foundation

Make Your Appointment

Don’t miss your chance to make a year-end tax planning appointment. Choose an in-person meeting (limited availability), or a Zoom or phone meeting. Please call Amber at  706-632-7850 or email her to set up a date today.

Money Brief: Employee Social Security Tax Deferral

If you are an employer, did you take advantage of President Trump’s August 8th memorandum allowing you to defer your employees’ portion of Social Security tax from September 1 through December 31, 2020? If so, keep in mind:

  • To repay the deferred amount of the employee Social Security tax, you will need to withhold additional Social Security tax from your employees’ paychecks from January 1 through April 30, 2021.
  • At year-end, when you report total Social Security wages paid to your employees on Form W-2, Wage and Tax Statement, you should include any wages for which you deferred withholding and payment of Social Security tax in box 3, “Social Security Wages,” and/or box 7, “Social Security Tips.” Do NOT include in box 4, “Social Security Tax Withheld,” any amount of deferred employee Social Security tax that has not been withheld.
  • Any employee Social Security tax deferred in 2020 that is then withheld in 2021 and that was not reported on your 2020 Form W-2s should be reported in box 4, “Social Security Tax Withheld,” of Form W-2c, Corrected Wage and Tax Statement. On Form W-2c, you will enter tax year 2020 in box C and adjust the amount previously reported in box 4 of the Form W-2 to include the deferred amounts that were withheld in 2021. All Forms W-2c should be filed with the Social Security Administration, along with Form W-3c, Transmittal of Corrected Wage and Tax Statements, as soon as possible after you have finished withholding the deferred amounts.
  • You will also need to provide your employees with copies of Forms W-2c.
  • To report the amount of Social Security tax deferred, use lines 13b and 24 of 2020 Form 941, Employer’s Quarterly Federal Tax Return, which the IRS has revised. The instructions for the form have also been updated to explain these rules.

If you are an employee who had Social Security tax deferred, you should receive a Form W-2c from your employer(s). In some cases, you may need to file a Form 1040-X, Amended U.S. Individual Income Tax Return, to claim a credit for any excess Social Security tax withheld.

Please feel free to contact us with any questions you have regarding payroll tax deferrals.

The Million Dollar Question: Are You (Really) Ready for Retirement?

The Million Dollar Question: Are You (Really) Ready for Retirement?

People tend to underestimate how much they are going to need for retirement. Americans aged 65-74, for example, currently spend an average of $55,000 a year. But 60% of Baby Boomers who haven’t yet retired believe they will need less than that to live on during retirement — in fact, 44% believe they will need less than $35,000.

Unfortunately, those statistics are just two of the many disconnects we have over the need for retirement savings. Several recent studies find that many Americans, especially younger ones, might not be financially ready to retire when the time comes. Consider:

  • 66% of working Millennials (those aged 22-37) have no retirement savings whatsoever, and only 5% are saving adequately for retirement.
  • Thanks to the “Great Recession,” Millennials today generally earn about 20% less in wages, are less likely to own a home and have accumulated about half of the wealth of their parents at the same stage of their lives.
  • 47% of Gen Xers (those aged 38-53) have no retirement account, and about 48% of those who do have less than $50,000 saved.
  • Some reports say up to 45% of Baby Boomers (those aged 54-72) have zero retirement savings!
  • For retiring Boomers, the average Social Security check is $14,000 a year. And only 23%-38% of Boomers expect any income from a private company pension plan.

The news doesn’t have to be all bad, though. Individual Retirement Accounts (both Roth and Traditional) remain a proven way to put away money on a tax-advantaged basis. And special “catch up provisions” allow taxpayers age 50 and older to sock away a little more each year. For 2019, your total contributions to all of your traditional and Roth IRAs is limited to $6,000 ($7,000 if you’re age 50 or older), or the total amount of your taxable compensation for the year (if it’s less than the limit). And you have until April 15, 2020, to make this year’s contribution.

Just call us at 706-632-7850 or email us to schedule an appointment — we’ll be happy to walk you through your retirement saving options!

Sources: National Institute on Retirement SecurityCNBCBusiness Insider ForbesMarketWatch, IRS

Term of the Week:
Tax-deferred

Tax-deferred refers to investment earnings, such as interest, dividends or capital gains, that accumulate tax-free until the investor takes the profits — at which time income taxes and capital gains taxes come due. The most common types of tax-deferred investments are individual retirement accounts (IRAs) and deferred annuities. Because no taxes are paid until you take a withdrawal, your money can grow at a faster rate than it would in a taxable product.

So You Want to Be an Astronaut

Adventurous (and rich!) folks can soon take a ride to the International Space Station (ISS). NASA has opened up the ISS to companies that fly “private astronauts” into space for a visit of up to 30 days. It will only cost you about $52 million to buy a seat on SpaceX, Elon Musk’s famous spaceship! (Source: CNBC)

The information provided here by Premier CPA Services PC is for general information only. It does not constitute legal, accounting, tax or other professional advice or services, and is presented without any representation or warranty as to the accuracy or completeness of the information. Please contact us for information as it relates to your circumstances.