IRA Contribution Rules

Roth or Traditional IRA? - Parsec Financial

The maximum individual retirement account contribution for 2021 is $6,000 ($7,000 if aged 50 and over).

The question of choosing between a Traditional IRA and Roth IRA largely comes down to when it’s most opportunistic for you to pay taxes.

A Traditional IRA is a great option if you’re in your mid-to-late career and in your peak earnings years. Because of your high income, you’re likely paying a high marginal rate on your income taxes. With the Traditional IRA, you can put away pre-tax dollars and avoid the high tax rates today. Then, with some strategic planning, you can potentially pay a lower amount of taxes when you withdraw the funds in retirement.

The Roth IRA is a great option if you’re a younger investor who is early in your career. The dollars you save will be after-tax dollars, and you won’t have to pay income tax on them when you withdraw them later in retirement. Federal income tax rates are at generational lows right now, so it’s a great idea to pay taxes on savings now, allow them to grow, and get them tax free 20 to 30 years later.

There are income limits which determine whether you can deduct your Traditional IRA contribution or if you qualify to make a Roth IRA contribution. The following tables give the phase-out range for the most common circumstances. Keep in mind that if neither you nor your spouse participate in a work-sponsored plan, you can deduct Traditional IRA contributions regardless of your income.

Please remember in the tables below that if your income is less than the beginning of the phase-out range, you qualify. If your income is over the phase-out range, you do not. If your income falls inside the range, you partially qualify.

Do you qualify to deduct your Traditional IRA contribution?

Modified Adjusted Gross Income Phase-Out Range

Tax Filing Status For 2020 Contributions For 2021 Contributions
Single, participates in an employer-
sponsored retirement plan:
$65,000 – $75,000 $66,000 – $76,000
Married filing jointly, participates in
an employer-sponsored retirement plan:
$104,000 – $124,000 $105,000 – $125,000
Married filing jointly, your spouse participates in an
employer-sponsored retirement plan, but you do not:
$196,000 – $206,000 $198,000 – $208,000

Do you qualify to contribute to a Roth IRA?

Modified Adjusted Gross Income Phase-Out Range – Roth

Tax Filing Status For 2020 Contributions For 2021 Contributions
Single and heads of household: $124,000 – $139,000 $125,000 – $140,000
Married, filing jointly: $196,000 – $206,000 $198,000 – $208,000

If your filing status differs from those listed above, please contact your advisor and they can help you determine whether you qualify.

Justin White, CPA
Tax Manager

Share:

Share on facebook
Share on linkedin
Share on email
Share on print

Recent Posts:

Do You Need an Estate Plan?

I’m often asked this question: “With the federal estate death tax exemption amounts being so high, do I really need an estate plan?” The answer I give is “Absolutely yes!”

Taxation of Inherited IRA Assets

If you have recently inherited an IRA, may receive an inherited IRA in your future or are passing along your IRA to beneficiaries, it is important for you to be aware of the IRS requirements for taking required minimum distributions (RMDs) from an inherited IRA. Since IRA accounts are typically funded with all — or almost all — pretax funds, every distribution from an IRA is taxed as ordinary income and can have a considerable effect on your tax liability. There have always been rules to require taxpayers to take these distributions and pay tax on them, but these rules have changed significantly in the last couple of years.

Recent Quarterly Newsletters:

Leaving a Legacy Edition

Read our Q4 2021 newsletter on leaving a legacy via strategic estate planning. We provide 10 articles with guidance on if you need an estate plan; types, features and taxation of trusts; how to set up trust funds for (grand)children; how to talk to your children about your estate; small-business transfer strategies; estate planning for the nontraditional family; how property titling can affect your estate plan. We also discuss what to do with your estate plan after getting a divorce or losing a loved one. We also introduce a new strategic alliance we formed with First Covenant Trust to offer our clients a full range of trust solutions.

Retirement Readiness Edition

If you are getting close to retirement age, this newsletter is for you. Parsec CEO Rick Manske explains how to save for education expenses in the face of retirement planning. Michael Baughman provides a 5-year countdown checklist, and Travis Boyer explains how to adjust your portfolio allocation ahead of retirement alongside a portfolio spending illustration. Nancy Blackman outlines eight steps to take ahead of retirement and Cristy Freeman suggests making a bucket list. Larry Harris writes about his experience turning 65 and Neal Nolan ponders what the day after retirement might feel like. We announce our 2021 Parsec Prize recipients and other company news. Enjoy!

Recent Whitepapers:

Get updates from parsec financial

Scroll to Top

Not a Client But want to receive updates?

Please sign up to join our mailing list and receive our latest news, thought leadership content and invitations to upcoming webinars.