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Important update: 2021 tax provision changes

Important update: 2021 tax provision changes

November 3, 2020Virtus Law PLLCNo CommentsCategories: Articles

During the current COVID-19 pandemic and the upcoming state and national elections, uncertainty is at its highest. Uncertainty in your tax provisions is no exception. Knowing how much you can contribute to your retirement account or how much you may leave to a loved one without paying a federal tax are difficult and ever-changing questions.

The Internal Revenue Service has released many official tax provisions for 2021. These provisions may drastically change depending on the outcome of the November 3rd elections.

The estate and gift tax exemption is $11.7 million per individual. A married couple is allowed an exemption of $23.4 million. This provision is likely to change under a Biden administration who has proposed changing estate and gift taxes to their 2009 level of $3.5 million per person for the estate tax and $1 million for the gift tax. There is even more at stake if you live in Minnesota. The Minnesota estate tax exemption is $3 million, a much lower number to apply to one’s estate compared to the current federal exemption. If you are nervous about the tax exemptions going down, then now is the time to start a gifting plan.

The annual gift exclusion amount for 2021 stays the same at $15,000, which means an individual may gift $15,000 to as many individuals as they would like without being subject to federal tax. A married couple may gift $15,000 each to an individual and not be subject to federal tax.

401(k), 403(b) accounts, most 457 plans and the government Thrift Savings Plan contribution limits will remain at $19,500 for individuals in addition to $6,500 in catch-up contributions for individuals 50 or older. SIMPLE retirement accounts (savings incentive match plan for employees) will also stay at their current savings limit of $13,500.

Limits on individual retirement accounts will also stay the same at $6,000. Individuals over 50 can contribute an extra $1,000 to traditional and Roth IRAs in 2021.

The income ranges to be eligible for Roth IRA contributions will increase in 2021. Singles and heads of household range is $125,000 to $140,000. The range for married couples who file jointly is $198,000 to $208,000.

Virtus Law, PLLC continues to monitor changes in this area and will continue to post relevant updates to this website.

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