Legal Updates

Retirement – for some people, they have achieved that stage in life. For others, they may be planning for retirement either in the not-so-distant or distant future.  However, in whatever pre-retirement stage of life you are in, it is never too early to think about it. 

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year, either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2021:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000, up from $65,000 to $75,000.
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $198,000 and $208,000, up from $196,000 and $206,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $66,000 for married couples filing jointly, up from $65,000; $49,500 for heads of household, up from $48,750; and $33,000 for singles and married individuals filing separately, up from $32,500.
• The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for singles and heads of household, up from $124,000 to $139,000. For married couples filing jointly, the income phase-out range is $198,000 to $208,000, up from $196,000 to $206,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Key Employee Contribution Limits Remain Unchanged

The limit on contributions by employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remain unchanged at $19,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans remains unchanged at $6,500.

The limitation regarding SIMPLE retirement accounts remains unchanged at $13,500.

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Have you found the need to take a withdrawal from your retirement plan during this pandemic or are you thinking about doing so to ease your burdens? 

The CARES Act that Congress passed in late March includes provisions enabling people to take distributions or loans up to $100,000 from their IRA, 401(k) or 403(b) plan and get some favorable tax treatment for the calendar year 2020. 

Usually, if you have not reached the age of 59-1/2, any withdrawals are subject to a 10 percent additional tax or surcharge for a premature distribution.  That is definitely something to make you think twice about taking a premature distribution.  Also, for an individual of any age, the distribution is normally reported in the tax year in which it is received.  If you are looking to take a loan against your retirement plan, the maximum loan amount has been limited to $50,000.00. 

But, thanks to the CARES Act, those scenarios have been adjusted for 2020.  If you are under the age of 59-1/2 and take a distribution, there will be no additional 10 percent tax.  If you take a distribution, you have three years to repay a 2020 distribution to your plan or IRA and undo the tax consequence.  And, finally, if you need to take a loan, the maximum has been increased to $100,000. 

There are some finer details with regard to the three allowances above and I suggest that you consult your professional team (tax preparer, accountant, attorney, financial advisor) or brush up on the details on irs.gov. 

Just trying to provide some relief if relief is needed.  Stay safe.

Are you interested in freezing your credit report/line to help avoid identity theft?  Good News – Congress has recently passed legislation that will allow people to freeze their credit lines for free.  This will allow people to block thieves from opening up credit in their name without charge.

In the past, credit rating companies have charged fees of $2 to $10 to those who want to freeze their credit reports to help protect themselves from fraud. In states that have not already outlawed the fees, the freezes can cost from $2 to $10, and you need to pay it to each of the three credit-rating agencies separately.

This new bill has been signed by the president and the no-fee service will go into effect in the coming months.

Support for the freeze gained ground in the months since Equifax, one of the three major credit-rating agencies, announced its data had been breached and that as many as 150 million consumers’ personal information was revealed. Fraudsters can use such information to establish credit in another person’s name, posing significant financial liability on the unsuspecting consumer and negatively affecting the consumer’s credit rating. With a freeze in place, no one can set up such credit in your name.

Be on the lookout for this option.  In the meantime, if you wish to check your credit report, the IRS suggests using www.freecreditreport.com to check your information with each of the three credit-reporting credit agencies.  You are able to obtain a report from each of the agencies once a year for free.