Cost of Living Adjustments in 2021 and How They Affect Your IRA
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Cost of living adjustments (COLAs) are made each year as a result of inflation. COLAs typically reflect the increase in percentage of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Specifically, they’re an increase to Supplemental Security Income and Social Security to counteract the effects of inflation.
COLAs are announced by the IRS every fall. The amount you can contribute to your IRA or deduct on your tax return can change based on the year’s COLAs. For tax year 2021 some contribution limits have changed from 2020, but many have not.
Traditional IRAs
The annual contribution limit remains $6000, but the income limits that determine the tax deductibility of the contributions you make to your Traditional IRA have increased.
| Traditional IRA Contribution Limits | 2020 | 2021 |
| Up to age 50 | $6,000 | $6,000 |
| Catch-Up Contributions Age 50+ | $1,000 | $1,000 |
| Total Contribution if Over the Age of 50 | $7,000 | $7,000 |
| Traditional IRA Modified Adjusted Gross Income (MAGI) Limits | 2020 | 2021 |
| Single Active Participant | $65,000 to $75,000 | $66,000 to $76,000 |
| Married Active Participant, Filing Joint Tax Return | $104,000 to $124,000 | $105,000 to $125,000 |
| Married Active Participant, Filing Separate Tax Returns | $0 to $10,000 |
$0 to $10,000 |
| Spouse of an Active Participant | $196,000 to $206,000 | $198,000 to $208,000 |
Roth IRAs
The annual Roth IRA contribution limit is still $6000. However, the income limits have increased.
| Roth Contribution Limits | 2020 | 2021 |
| Up to age 50 | $6,000 | $6,000 |
| Catch-Up Contributions Age 50+ | $1,000 | $1,000 |
| Total Contribution if Over the Age of 50 | $7,000 | $7,000 |
| Roth IRA MAGI Phase-Out Ranges | 2020 | 2021 |
| Single Individuals | $124,000 to $139,000 | $125,000 to $140,000 |
| Married, Filing a Joint Tax Return | $196,000 to $206,000 | $198,000 to $208,000 |
| Married, Filing Separate Tax Returns |
$0 |
$0 to $10,000 |
SEP IRAs
2021 SEP IRA contribution limits and compensation thresholds increased from 2020.
| 2020 | 2021 | |
| SEP Employer Contribution Limits | Up to 25% of compensation, with a maximum of $57,000 | Up to 25% of compensation, with a maximum of $58,000 |
| SEP Current Year Minimum Compensation Required | $600 | $650 |
SIMPLE IRAs
The contribution limits for SIMPLE IRAs stay the same as the year before for 2021.
| SIMPLE IRA Contribution Limits | 2020 | 2021 |
| Employee Elective Deferrals | $13,500 | $13,500 |
| Catch-Up Elective Deferral Contribution Age 50+ | $3,000 | $3,000 |
| Your employer can elect from two different contribution methods. Check with your employer which option they have chosen. Employer contributions are in addition to your elective deferrals. | ||
Want to learn more about contribution limits and reporting IRA transactions? Check out Tax Returns: How to Report IRA Transactions.
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