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Maximizing Your 2020 and 2021 IRA Contributions

*IRS update March 29, 2021: 2020 tax returns and IRA contribution deadlines extended to May 17, 2021.  

Thankfully, 2020 has come and gone, but it’s not too late to incorporate tax-advantaged savings with IRA contributions for 2020. Here is how you can maximize IRA contributions for 2020 and 2021.

Save Longer – New Rules for IRA Contribution Eligibility

IRAs were introduced in the mid-’70s to help taxpayers save for retirement and reduce their taxable income. So, to contribute – and get the full tax benefit – you’ll need to have earned income. In 2019 and prior years, in addition to having earned income,  investors needed to be under the age of 70½ to make a contribution to a Traditional IRA.

The Secure Act, officially enacted on January 1, 2020, repealed the contribution eligibility age restriction for Traditional IRA investors. While the earned income rule remains constant, investors in 2020 and beyond can save for longer periods. 

Save More – New IRA Contribution Limits 

Additional IRA changes include increased contribution limits from the tax year 2019. For 2020 and 2021, if you have earned income, you can deposit the maximum contribution to your IRA. If you’re age 50 or older, you can contribute an extra $1,000 – for a total of $7,000 for 2020 – between your Traditional and Roth IRAs.

A married couple filing a joint tax return can each make the maximum contribution if each is eligible and has an IRA. For example, a couple could contribute $12,000 ($14,000 if both are over age 50) for the 2020 tax year. This could add up to a large tax deduction if contributing to Traditional IRAs or a big boost in tax-free retirement income if contributing to Roth IRAs.

Traditional and Roth IRAs have the same contribution limits and catch-up contribution limits however, the phase-out ranges differ.

Traditional IRA 2021 2020
Contribution limit $6,000 $6,000
Catch-up contribution $1,000 $1,000
Married active participant, filing joint tax return – tax deduction phase-out range $105,000 – $125,000 $104,000 – $124,000
Roth IRA 2021 2020
Contribution limit $6,000 $6,000
Catch-up contribution $1,000 $1,000
Married active participant, filing joint tax return – tax deduction phase-out range $198,000 – $208,000 $196,000 – $206,000

Phase-out ranges are based on modified adjusted gross income or MAGI. Your MAGI determines if -and how much – you can contribute to a Roth IRA and how much of your contributions can be deducted from your tax filings in a Traditional IRA. A full list of phase-out ranges for Traditional and Roth IRAs is included in STRATA’s IRA Annual Limits

IRA Contribution Deadlines for 2020 and 2021

Make your 2020 IRA contribution soon, time is of the essence 
For 2020, investors can make an IRA contribution anytime between January 1, 2020, and *May 17, 2021.

Maximize your 2021 IRA contributions…automatically
For 2021, contributions began January 1, 2021, and goes through April 15th, 2022. Some IRA owners set up automatic monthly ACH transfers from a bank account to fund their IRA throughout the year.  This is easy to do with your STRATA account, simply complete and submit STRATA’s ACH Contribution Authorization Agreement.

Maximize your tax advantage
Traditional IRA contributions are generally fully deductible unless you or your spouse are covered by an employer’s retirement plan, such as a 401(k) plan. If you or your spouse are participating in an employer plan, the deductibility of your Traditional IRA contributions will depend on whether your MAGI exceeds certain limits.

If you don’t qualify to take a deduction, you may still contribute to a Traditional IRA. File IRS Form 8606 with your tax return to track the basis in your IRA, so you won’t have to pay tax on your nondeductible contributions when you take money out of your IRA in the future.

Additional IRA Contribution Resources

  • What are SEP and/or Simple IRA contribution deadlines for 2020 – 2021?

    SEP IRA   2020 2021
    Contribution deadline *May 17, 2021  April 15, 2022
    Simple IRA 2020 2021
    Contribution deadline for employees December 31, 2020 December 31, 2021
    Contribution deadline for employers *May 17, 2021 April 15, 2022

    For more information on SEP and Simple IRA plans, including contribution limits, see the STRATA Insights article 2021 Cola Announcement: Impact on IRAs or for a quick chart refer to STRATA’s IRA Annual Limits.

  • Can I still make an IRA contribution for 2020?
    YES, the deadline for making a 2020 IRA contribution is *May 17, 2021. Keep in mind that IRA contributions are recorded for the tax year in which the deposit is received unless marked otherwise. When making an IRA contribution between January 1- *May 17 that should be credited for the prior year, be sure to specify the year when completing the Deposit Certification form.  

  • How do I make an IRA contribution to my STRATA account?
    Instructions for STRATA account holders can be found here.

  • Have questions and need answers?
    Visit STRATA’s Annual Contribution FAQs 

 More Information

If you are wondering what type of IRA may be right for you, look at STRATA’s IRA Comparison and learn the advantages of each – Traditional, Roth, SEP or SIMPLE IRA. Talk with your financial or tax professional for assistance in determining the best type of IRA for your financial retirement goals. 

 

 

 

 

Tags: 2020 IRA Contribution, all things retirement, IRA Annual Limit, IRA Contribution limit, ira contributions, IRA deadline