2021 Tax Planning

The new year brings new changes to some of the federal tax figures used in financial planning. Here are some highlights:

• The standard deduction has increased slightly in 2021 due to a cost of living adjustment to $25,100 for married joint filers and $12,550 for singles.
  
  
• The federal estate and gift tax exclusion amount has increased from $11,580,000 to $11,700,000 for 2021, although the annual gift tax exclusion remains at $15,000.
  
  
• Contribution amounts for qualified plans and IRAs generally remain at 2020 levels. For instance, the salary deferral limit for contributions to 401(k), 403(b), and governmental 457(b) plans remains at $19,500 for 2021.
  
  
• The catch-up contribution to 401(k), 403(b), and governmental 457(b) plans also remains at $6,500. Therefore, a participant in a 401(k), 403(b), or governmental 457(b) plan who is age 50 or over may defer up to $26,000 from their salary into the plan in 2021.
  
  
• The 2021 IRA contribution limit also remains at the 2020 level of $6,000. (Remember that because the SECURE Act eliminated the age 70½ age limit for traditional IRA contributions, clients of any age may contribute to an IRA if they have earned income).