2020 is finally behind us. What is your plan for year 2021? Here I outlined some financial tips for you to put on your early 2021 to-do list to jump start the year to be a successful and prosperous one for you and your loved ones. Below are some of the essential personal financial information you will want to save and keep in handy as your reference guide throughout the year.
- Adjust your retirement plan contributions for 2021
2021 retirement plan contribution limits
Plan | Maximum Deferral | Age 50 and Over Catch-up Contribution | |
401(k)/403(b) | $19,500 | $6,500 | |
Deductible IRA | $6,000 | $1,000 | |
Non-Deductible IRA | $6,000 | $1,000 | |
Roth IRA | $6,000 | $1,000 |
The individual IRA contribution deadline for 2020 is April 15, 2021.
Phase out range for deductible IRA is $105,000-$125,000 for joint filing if covered by a workplace retirement plan; Phase out range for Roth IRA is modified AGI from $198,000-208,000 for joint filers.
Health Savings Account Contribution Limit for 2021:
Self-only | Family Coverage | |
Contribution Limit | $3600 | $7200 |
Contribution Limit over age 55 | $4600 | $8200 |
High-deductible health plan minimum deductible | $1400 | $2800 |
High-deductible health plan out-of-pocket maximum | $7000 | $14,000 |
- Keep in mind these important income tax facts for 2021:
2021 Income Tax Brackets and Rates:
Tax Bracket | Single Filer Income Range | Married File Jointly Income Range |
10% | $9,950 or less | $19,900 or less |
12% | $9,951- $40,525 | $19,901 – $81,050 |
22% | $40,526 and $86,375 | $81,051 and $172,750 |
24% | $86,376 and $164,925 | $172,751 and $329,850 |
32% | $164,926 and $209,425 | $329,851 and $418,850 |
35% | $209,426 and $523,600 | $418,851 and $628,300 |
37% | $523,601 or more | $628,301 or more |
The standard deduction is $12,550 for individuals and $25,100 for married couples filing jointly.
2021 Alternative Minimum Tax (AMT) Exemption Amounts:
Single or Head of Household | Married File Jointly or Qualified Widow | Married File Separately | |
Maximum Exemption | $ 73,600 | $ 114,600 | $ 57,300 |
25% reduction if over: | 523,600 | 1,047,200 | 523,600 |
Exemption Eliminated | 818,000 | 1,505,600 | 752,800 |
2021 Qualified Dividend and Long-term Capital Gain Tax Rate:
Income Range: Single filer | Income Range: Married file jointly | Capital Gain Tax Rate |
$0-$40,400 | $0-$80,800 | 0% |
$40,401-$445,850 | $80,801-$501,600 | 15% |
Over $445,850 | Over $501,600 | 20% |
Net Investment Income Tax:
Individuals will owe the tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds:
Filing Status | Threshold Amount |
Married filing jointly | $250,000 |
Married filing separately | $125,000 |
Head of household (with qualifying person) | $200,000 |
Qualifying widow(er) with dependent child | $250,000 |
Single | $200,000 |
The Net Investment Income Tax (NIIT) applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.
- Annual Exclusion for Estates and Gifts
In 2021, the first $15,000 of gifts to any person is excluded from tax.
Since 2018, the Tax Cuts and Jobs Act temporarily increased the basic exclusion amount for estate and gift taxes for tax years 2018 through 2025, with both dollar amounts adjusted for inflation. For 2021 the exclusion amount is $11,700,000 per individual, and $23,400,000 for a couple.
- Review your Insurance policies
If your situation has changed during 2020, such as change of job, birth of a new child, or purchases of new car, house, etc., you need to review your insurance coverage or talk to your financial adviser to help you come up with proper coverage amount for your current insurance needs.
Don’t forget the deadline for individual tax filing is Thursday April 15, 2021.
Gather and organize all your paperwork such as W-2 forms, bank statements, mortgage payment statements, property tax receipt, business expenses, investment statements from your broker-dealers, charity donation receipts, etc. for your 2020 tax filing.
- A couple of events that you might want to keep an eye on:
- House Ways and Means Committee Chairman Richard Neal plans to reintroduce in the new Congress the Securing a Strong Retirement Act of 2020, which would boost the required minimum distribution age from 72 to 75. In 2019, the Secure Act passed by congress has pushed the age that retirement plan participants need to take the required minimum distributions (RMD) from 701/2 to 72. If this new bill passes, it would create more favorable financial planning opportunities to people contributing to various retirement plans.
- Another thing to watch for is for families with kids applying for college in the fall 2021. The dates and places of taking the SAT/ACT had been changed a couple of times last year by the institutions which offer these tests due to the pandemic. Since the pandemic is still going on parents need to make sure their high school kids know the exact dates and places of taking these tests. Parents and students can go to www.collegeboard.org to check out the latest updates on SAT test or www.act.org for ACT tests.