During the COVID-19 pandemic, it’s been difficult to do long-term planning—just hoping to make it through the month, the week, or the day is enough. Now, it’s time to rethink retirement investments and resume planning for a comfortable future. New legislation and the expiry of old legislation have called for new approaches to saving for retirement. What’s new for 2021 when it comes to rules and regulations for retirement investments? Read on to find out.
IRA Contributions for Septuagenarians
Compared to Europe, Americans have always been infamous for their workaholic tendencies. We take fewer vacations and work more years than many of our counterparts across the Atlantic. For an increasing number of Americans, this tendency is not a preference, but a necessity—nearly 15 percent of Americans work well into their seventies. When those workers have individual retirement accounts, they may need to start making their required minimum distributions before they’re retired. With an eye toward this greying but active segment of the workforce, the federal government has repealed legislation that bans contributions to individual retirement accounts after age 70 ½, making it possible to keep enjoying IRA benefits after age 70. Though RMDs remain necessary after this de jure retirement age, this compromise allows older workers to keep building for a later retirement without depleting their retirement funds ahead of schedule.
The End of Early-Withdrawal Penalty Waivers
It’s not all good news. The waiver on early-withdrawal penalties included in the CARES Act was a boon to families who found themselves struggling mightily in the early throes of the COVID-19 pandemic and turned to their IRA savings for relief. This provision of the CARES Act expired at the end of the 2020 calendar year, meaning that the heavy penalties meant to discourage early withdrawals from IRAs are once again in place. While some exemptions remain on the books, such as paying for medical bills, most early withdrawals in 2021 and beyond will incur an automatic 10-percent penalty along with counting as gross taxable income—a dangerous double-dip that verges on making the withdrawal more trouble than it’s worth.
Catch-up Contributions To IRAs
Recognizing that hard times may have abated for many investors, the maximums for annual IRA contributions will enjoy a slight bump for many workers to make up for lost savings in 2020. What’s new for retirement saving in 2021 is the implementation of “catch-up” contributions to normal IRA investments. If you’re age 50 or older, you may exceed the $6,000 maximum contribution to a traditional or Roth IRA by $1,000 for a grand total of $7,000 in 2021, while 401(k)s allow for even more generous catch-ups, with a ceiling of $26,000 in 2021.