When it comes to retirement account contribution limits for 2021, taxpayers face a good news/bad news situation.
Bad News First: This IRS will not increase retirement account contribution limits this year
The IRS set the following retirement account contribution limits for 2021.
If you are an employee saving for your retirement through a 401(k), 403(b), a typical 457 plan, or the Federal Thrift Savings Plan, you can contribute up to $19,500. This is the same contribution limit as 2020. For employees 50 or older, the IRS keeps a “catch-up” limit the same as 2020, $6,500. This means older employees in this group can contribute $26,000 ($19,500 + the $6,500 catch-up contribution.)
If you save for retirement with a traditional or Roth IRA, the IRS also uses the same contribution ceiling as 2020, $6,000. Taxpayers using these accounts and age 50+ can make an additional catch-up contribution of $1,000. These older savers will have a total limit of $7,000 ($6,000 + the $1,000 catch-up)
Likewise, the IRS also keeps the same contribution limits for a SIMPLE IRA, which is a retirement plan designed for small businesses with 100 or fewer employees. These retirement-savers can contribute $13,500 for 2021. There is a catch-up contribution for those 50 years or older of $3,000.
Now the Good News: The IRS has increased the maximum income levels for contributors
By increasing income ranges for tax-deductible contributions, the IRS enables more US taxpayers to qualify for these tax breaks.
Below are the income limits for US taxpayers contributing to retirement accounts in 2021. In one of our prior posts, you can read about retirement account options
Changes for Folks Contributing to Traditional IRAs
If you save for retirement by contributing to a traditional IRA, the IRS gradually phases out IRA deductions as your income increases. The 2021 phase-out ranges are as follows.
For a single person (or head of household) covered by a workplace retirement plan, the income phase-out range starts at $66,000 and reaches a ceiling at $76,000. Individuals making more than $76,000 cannot take this deduction. This phase-out range in 2020 was $65,000 to $75,000.
For a married couple, filing jointly, the IRS provides two different thresholds:
First, when a spouse wants to make an IRA contribution and his or her workplace offers a retirement plan the contributing spouse’s phase-out income range is $105,000 to $125,000. In 2020, this phase-out range was $104,000 to $124,000.
Secondly, when a spouse wants to make an IRA contribution and his or her workplace does not offer a retirement, but the other spouse’s employer does, the contributing spouse’s phase-out income range is $198,000 and $208,000. In 2020, this phase-out range was $196,000 and $206,000.
Changes for Folks Contributing to Roth IRAs
If you save for retirement using a Roth IRA, the IRS limits the amount you can contribute based on your income.
Below are the Roth IRA contribution limits for 2021. Once your modified adjusted gross income (MAGI) reaches a certain range, the IRS reduces the amount you can contribute. You can read about the reduction limits at this link.
If your tax filing status is single, head of household, or married filing separately and you did not live with your spouse at any time during the year, you to contribute to a Roth IRA based on the these brackets:
- If your MAGI is less than $125,000, you can contribute the maximum limit, $6,000 ($7,000 if you’re age 50 or older),
- If your MAGI is greater than $125,000 but less than $140,000, you can contribute at a reduced amount. Learn more about the reduced amounts at the link above.
- If your MAGI is more than $140,000, you cannot contribute to a Roth IRA
If your tax filing status is married filing jointly or qualifying widow(er), you can contribute to a Roth IRA based on these brackets:
- If your MAGI is less than $198,000, you can contribute the maximum limit, $6,000 ($7,000 if you’re age 50 or older),
- If your MAGI is greater than $198,000 but less than $208,000, you can contribute at a reduced amount. Learn more about the reduced amounts from the link above.
- If your MAGI is more than $208,000, you cannot contribute to a Roth IRA
If your tax filing status is married filing separately and you lived with your spouse at any time during the year, you can only contribute to a Roth IRA if your MAGI is less than $10,000. The IRS reduces the contributions you can make as your MAGI increases above zero up to $10,000. Learn more at the link above.
If you have any questions about your retirement account contributions for 2021, please contact us.
