Text size
Photograph by Fabian Blank
In the blink of an eye, the book changed for many retirement savers in 2021.
Each community’s Confederation for Retirement or Security Improvement Act, signed by President Trump on December 20, brings the most profound changes to the U.S. retirement system in more than a decade. The new rules are aimed at increasing Americans’ access to work-based retirement plans and helping their savings last longer, with significant changes in offers and the availability of 401 (k) s as well. as at the time of individual retirement account distributions.
“Some of these provisions will be real game changes for retirees,” says Charlie Nelson, chief retirement and benefits executive for Voya Financial employees. “Secure law will advance coverage, provide greater access to lifetime income solutions, and offer many other positive aspects that will benefit people’s savings in workplace retirement plans.”
Here are some key details from the Security Act and some other things to keep in mind in the 2021 retirement plan:
Retirement legislation
Among other things, the Safe Law extends the time in which retirees must begin to take the minimum necessary distributions of retirement accounts, going back to 72 years from the age of 70½. For those who turn 70 and a half in 2020, the first RMD must be done before April 1, 2021. But anyone who turns 70 and a half after January 1, 2021 will not you will need to take your RMD until you are 72 years old.
Another key provision concerns IRAs inherited by a non-spouse beneficiary, a common wealth planning strategy to extend IRA distributions. Beneficiaries of an IRA should withdraw the account (and pay income tax) for a decade, rather than a lifetime, with certain exceptions.
The measure also opens the door for annuities to become a more common and accessible option for retirement plan participants; removes the 70½ year limit on IRA contributions; and increases the likelihood that small business owners will offer retirement plans with so-called multi-employer open plans.
Inflation adjustments
The Internal Revenue Service announced increases in the contribution limit for certain retirement plans. The contribution limit for employees participating in 401 (k), 403 (b), most 457 plans and the federal government’s Savings Savings Plan increases from $ 19,000 to $ 19,500. The recovery contribution limit for employees 50 years of age or older in these plans increases from $ 6,500 to $ 6,500.
The single IRA limit for 2021 increases to $ 13,500, from $ 13,000 by 2020.
In addition, income intervals for determining eligibility to make deductible contributions to traditional IRAs, Roth IRAs, and for claiming the savings credit increased by 2021. For example, the phasing-out interval for married couples who make contributions to a Roth The IRA is $ 196,000 to $ 206,000, $ 193,000 to $ 203,000. Consumers can visit the IRS website for more information on contribution changes.
Social Security and Supplemental Security income benefits for nearly 69 million Americans will increase 1.6% in 2021 as part of the annual cost-of-living adjustment. This could be offset somewhat by an increase in Medicare premiums. The Part B standard premium, which most people will pay, increases to $ 144.60 a month, or more, depending on your income; the Part B deductible increases to $ 198 by 2021; and Part A premiums, deductibles and co-insurance will also be higher in 2021, in addition to other changes that will affect certain retirees.
Election year proposals
While it would be premature to act, pre-retirees and retirees should be aware of proposals that could come to fruition based on election results.
For example, part of Democratic presidential candidate Joe Biden’s tax plan includes eliminating a tax gap known as “base increase”. Capital gains tax is usually paid by the difference between the initial purchase price of an asset and its value at the time of sale. The gap, however, adjusts the cost base of an inherited asset to the market value just at the date of the inheritance, so that capital gains paid on a future sale would be based on that value and not the purchase price. original.
Implementing a proposal like this could have a costly impact in cases where parents leave their children a valued asset (such as a home), says Jere Doyle, BNY Mellon Wealth Management’s estate planning strategist. Once the asset is transferred and sold, children should have taxes on potentially strong capital gains, he notes.
Do you have questions? Comments? Write to us at [email protected]