Each fall the Treasury Department announces inflation adjustments to tax-advantaged retirement accounts and income limits for the following tax year. They recently announced contribution limits and changes for the 2021 tax year.
For the most part, contribution limits for employees will remain unchanged, while limits for the self-employed and small business owners will increase. IRA savers will see slightly increased income limits for deducting contributions, and phase-out income limits for contributing to Roth IRAs. Here are the Retirement Plan Contributions limits for 2021:
401(k)s & 403(b)s – Contribution limits will remain at $19,500, with a catch-up contribution amount of $6,500 for those age 50+.
SIMPLE IRAs - Contribution limits will remain at $13,500, with a catch-up contribution amount of $3,000 for those aged 50+.
Traditional & Roth IRAs - Contribution limits will remain at $6,000, with a catch-up contribution amount of $1,000 for those aged 50+.
Combined Overall Contributions - Combined overall contribution limit will increase from $57,000 to $58,000.
SEP IRAs & Solo 401(k)s – Contribution limits increase from $57,000 to $58,000 for the amount that can be saved in SEP IRAs and Solo 401(k)s. The employee compensation limit for calculating contributions increases to $290,000.
There are also changes to income limits for 2021 to be aware of:
Traditional IRA - The income range limits for deducting contributions to a traditional IRA will increase by $1,000. The AGI phase-out range will be $66,000 and $76,000 for singles and heads of household covered by a workplace retirement plan. The range for married couples filing jointly, where the spouse who makes the IRA contribution is covered by a workplace retirement plan, will be $105,000 to $125,000.
Roth IRAs - The income eligibility limits for contributing the maximum to a Roth IRA will increase from $124,000 to $125,00 for singles and from $196,000 to $198,000 for married couples filing jointly. The AGI phase-out ranges will increase by $2,000 as well to $198,000 to $208,000 for married couples filing jointly, and to $125,000 to $140,000 for singles and heads of household.
Saver’s credit - The saver’s credit that’s designed to help low- to moderate-income workers save for retirement will also see an income limit increase for 2021. For singles it will increase from $32,500 to $33,000; for heads of household it will increase from $48,750 to $49,500; and for married couples filing jointly, it will increase from $65,000 to $66,000.
If you have questions on the 2021 contribution limits, let’s set aside some time to discuss to see how these changes may affect your financial goals.