How much can you save for your retirement in 2021 in tax-advantaged accounts? How does $58,000 sound? The Treasury Department announced inflation-adjusted numbers for retirement account savings for 2021.
The base salary deferral amount for 401(k) and similar workplace plans remains unchanged at $19,500; the catch-up amount of $6,500 if you are 50 or older also remains the same; but the overall limit for these plans increases from $57,000 to $58,000 in 2021. This helps workers whose employers allow special after-tax salary deferrals and self-employed people who can save up to the limit on their own or Individual 401(k) or SEP Retirement Plans.
For the rest of us, the IRA contribution limits are fixed. The amount you can contribute to an Individual Retirement Account remains the same for 2021: $6,000, with a catch-up limit of $1,000 if you’re 50 or older.
There’s a little good news for IRA savers. You can earn a little more and deduct your IRA contributions. Additionally, the phasing out income limits for contributing to a Roth IRA are increased.
And the income limits for claiming the savings credit, an additional incentive to start and continue saving, have increased.
We outline the numbers below; see Tax Notice 2020-79 for technical advice. For more on 2021 tax numbers: Forbes contributor Kelly Phillips Erb has all the details on 2021 tax brackets, standard deduction amounts and more. We also have all the details on the new, higher inheritance and gift tax limits for 2021.
401(k)s. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is $19,500 for 2021, for the second consecutive year. Note that you can make changes to your 401(k) election at any time of the year, not just during open enrollment season when most employers send you a reminder to update your choices for the next calendar year. diet.
The 401(k) catch-up. The catch-up contribution limit for employees aged 50 and over in these plans also remains stable: it is $6,500 for 2021. Even if you do not reach age 50 before December 31, 2021, you can make the contribution additional catch-up of $6,500 for the year.
SEP IRAs and Solo 401(k)s. For self-employed people and small business owners, the amount they can save in a SEP IRA or solo 401(k) increases from $57,000 in 2020 to $58,000 in 2021. This is based on the amount you ‘they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also increases from $285,000 in 2020 to $290,000 in 2021.
401(k) contributions after taxes. If your employer allows after-tax contributions to your 401(k), you also get the new $58,000 limit for 2021. This is an overall cap, including your $19,500 salary deferrals ( pre-tax or Roth in any combination) plus employer contributions (but no catch-up contributions).
The simple. The contribution limit for SIMPLE retirement accounts is unchanged at $13,500 for 2021. The SIMPLE catch-up limit is still $3,000.
Defined benefit plans. The annual benefit limit for a defined benefit plan is unchanged at $230,000 for 2021. These are powerful retirement plans (an individual version of the type that was more common in the corporate world before 401 (k) don’t take over) for the self-employed with high incomes.
Individual retirement accounts. The annual contribution limit to an Individual Retirement Account (pre-tax or Roth or a combination) remains at $6,000 for 2021. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000. (Remember that 2021 IRA contributions can be made until April 15, 2022.)
Phasing out the deductible IRA. You can earn a little more in 2021 and deduct your contributions to a traditional IRA before taxes. Note: Even if you earn too much to get a deduction for contributing to an IRA, you can still contribute, it’s just not deductible.
In 2021, the deduction for taxpayers who contribute to a traditional IRA is being phased out for singles and heads of households who are covered by a workplace pension plan and have modified adjusted gross (AGI) earnings between 66,000 $ and $76,000, compared to $65,000 and $75,000 in 2020. For married couples filing jointly, in which the IRA-paying spouse is covered by a workplace pension plan, the range revenue phase-out is $105,000 to $125,000 for 2021, increasing from $104,000 to $124,000.
For an IRA contributor who is not covered by a workplace pension plan and who is married to a covered individual, the deduction is phased out if the couple’s income is between $198,000 and $208,000 $ in 2021, compared to $196,000 and $206,000 in 2020.
Phasing out the Roth IRA. Adjusting for inflation also helps Roth IRA savers. In 2021, the AGI phase-out range for taxpayers contributing to a Roth IRA is $198,000 to $208,000 for married couples filing jointly, increasing from $196,000 to $206,000 in 2020 For singles and heads of households, the income phase-out range is $125,000. to $140,000, rising from $124,000 to $139,000 in 2020.
If you earn too much to open a Roth IRA, you can open a non-deductible IRA and convert it to a Roth IRA because Congress has lifted all income restrictions for Roth IRA conversions. For more on the Roth backdoor, see Congress Blesses Roth IRAs for Everyone, Even the Highly Paid.
Savings credit. The income limit for the savings credit for low- and middle-income workers is $66,000 for married couples filing jointly for 2021, up from $65,000 previously; $49,500 for heads of families, down from $48,750 previously; and $33,000 for singles and married filing separately, up from $32,500 previously.
QLAC. The dollar limit on the amount of your IRA or 401(k) you can invest in a qualified longevity annuity contract is still $135,000 for 2021.
Maximum social security contributions will increase by 3.7%, while benefits will increase by 1.3% in 2021