2021 Tax Planning: Retirement Savings for Individuals
It is always a good time to review and evaluate your retirement savings. The tax code provides significant incentives for contributions made to traditional and Roth IRA’s, as well as to employer-sponsored 401(k) plans. The tax law is designed to make it easy for individuals to save for retirement.
Depending on the type of investment account, tax incentives can include deductible contributions, tax deferral on the growth of assets in the plan, and potential tax-free distributions. The choice of investment that may be best for you depends upon your individual tax and overall financial situation.
401K Plans
Employees can elect to make 401(k) plan contributions through their wages using pre-tax dollars. To encourage employee participation in a 401(k) plan, employers often make matching contributions.
For 2021, participants can make 401(k) contributions of up to $19,500. Those who are age 50 or older can make additional “catch-up contributions” of up to $6,500, for a total of $26,000 in 2021.
Individual Retirement Account
Unlike a 401(k) plan, which employers offer, most IRAs are set up by taxpayers themselves. The types of IRAs are:
Traditional IRA. An IRA that allows a taxpayer to deduct contributions on their income tax return. Earnings in the IRA are allowed to grow tax-deferred and are only subject to income tax when they are distributed. There is no age limit for making contributions. When you reach the age of 72, yearly distributions from the IRA become required. If your spouse participates in a retirement plan at work, the deduction on your return may be limited.
Roth IRA. Unlike a traditional IRA, a taxpayer cannot deduct contributions to a Roth IRA, however, qualified distributions from a Roth IRA are tax-free. In addition, contributions can be made to a Roth IRA at any time, and distributions are not required to be taken from a Roth IRA at any age. The taxpayer's Roth IRA contribution may be limited based on filing status and income.
Self-Employed
Self-employed taxpayers may also participate in a SEP (Simplified Employee Pension Plan) IRA or SIMPLE (Savings Incentive Match Plan for Employees) IRA Plan.
The rules applicable to the types of investment can be complex. We are happy to help you maximize your tax benefit and overall savings.
About Holden Moss CPAs
We take the mystery out of tax strategy with step-by-step plans to save you on taxes and keep more money in your pocket.
Holden Moss works with small to mid-size family businesses, many of which are multi-generational, to focus on one of the biggest reasons new clients tell us they want to change CPAs: Ideas, including tax strategy, business strategy, and growth.
Holden Moss CPAs is dedicated to aiding our community during this difficult time. If you would like more information about your tax returns or other aspects of new legislation, Give us a call for a no-risk tax discovery session. The risk is on us, not you, to deliver valuable ideas. (919) 556-6216 or contact us via email at admin@holdenmoss.com. We look forward to working with you.
*Updates and guidance are issued daily by governmental authorities. The information above may change with new laws and rulings.