2021 Changes for Retirement Savings Plans
As we start the new year, Annuity Alliance wants to make sure consumers are updated about how 2021’s changes will affect their planning or retirement years. In 2020, COVID-19 relief through the Coronavirus Aid, Relief and Economic Security Act (CARES Act) assisted many retirees (and retirement planners).
The CARES Act in 2020 eliminated annual required minimum distributions (RMD) for retirees for last year, and also allowed people younger than 59½ to withdraw up to $100,000 from retirement accounts without the usual 10% penalty. If the withdrawals were COVID-19 related, the person making the withdrawal also could spread the retirement plan’s taxes over three years (instead of one) and he/she also had the ability to replace that money taken from the account.
Concerning both of these exceptions created by the CARES Act in 2020, RMDs will restart in 2021 as owners of certain retirement accounts will have to make those withdrawals and pay income tax on the amount withdrawn from the specific retirement account. The early withdrawal penalty is back in 2021, and income on withdrawals will count as income for the 2021 tax year.
For 2021, the amount you contribute to an IRA stays at $6,000 per year for age 50 and under with consumers aged 50+ able to add another $1,000 to their annual contribution ($7,000). If a person chooses to invest money into a 401(k) plan, 403(b) plan, or other employer retirement accounts, he/she can invest $19,500 in 2021 and consumers aged 50 and older can add up to $6,500 to these accounts.
More employers also are opening up to adding annuity into their retirement plan options. An annuity has multiple options with a minimum required amount and maximum contribution amount based on the selected carrier and annuity product. Based on the carrier, a person can take out monthly payments or lump sums depending on how they want to set up the annuity for their retirement strategy. Money also placed into an annuity is tax-free until a withdrawal is made from the account.
If you would like to discuss your annuity options, Annuity Alliance can connect you with a licensed professional to discuss these products. If you have any questions regarding taxes, please consult with your tax advisor.