Did you know that there have been a few small changes to the amounts you can contribute to your IRA, Roth IRA, SEP, SIMPLE or 401(k) starting January 1, 2021?
We’ve summarized in the accompanying graph what changes – and what doesn’t – for next year.
For the most part, annual employee contribution amounts for IRAs and 401(k)s are unchanged for next year, but small business employers – including those sponsoring an Individual 401(k) – can contribute an extra $1,000.
There are 3 important takeaways for next year.
1). Don’t forget that if you turn 50 at anytime in 2021, you can add an additional $1,000 to your IRA and an additional $6,500 to your 401(k). That will get you one step closer to retirement and could lead to a nice tax deduction to boot.
2). If you run your own business and have not yet set up a small business retirement plan, speak to your CFP® advisor as soon as possible. You could score up to a $64,500 tax deduction, all for putting money into your own account.
3). Longer life spans and potentially lower investment returns mean you need to save more to cover your retirement needs. The exact amount you should be saving depends on your age and spending needs, but a good rule of thumb is to save at least 10% to 15% of your pre-tax income each year. Your CFP® advisor can help keep you on the right path.