Many IRA and retirement plan restrictions are annually adjusted for inflation. While some of the limitations have remained the same for 2021, others have increased.
IRA contribution limits 2021
The maximum amount you can contribute to a traditional IRA or a ROTH IRA in 2021 is $6,000 (unchanged from 2020)
The maximum catch-up contribution for those age 50 or older remains $1,000
Can contribute to BOTH traditional IRA and a ROTH IRA but your total contributions can NOT exceed annual limits.
Income limits for deducting traditional IRA contributions
Contributions to a typical IRA are generally entirely tax-deductible if you (or both you and your spouse if you're married) are not covered by an employer retirement plan.
If you're married and filing jointly and aren't covered by an employer plan but your spouse is, your deduction will be reduced if your MAGI is between $198,000 and $208,000 (up from $196,000 and $206,000 in 2020) and will be eliminated if your MAGI is $208,000 or above (up from $206,000 in 2020).
For those who are covered by an employer plan, deductibility depends on your income and status.
Filing single or head of household, you can fully deduct your IRA contribution up to $6,000 in 2021 if your MAGI is $66,000 or less (up from $65,000 in 2020)
50 or older: $7,000
Filing married or joint returns, you can fully deduct up to $6,000 if your MAGI is $105,000 or less (up from $104,000 in 2020).
50 or older: $7,000
Income limits for contributing to a Roth IRA
*The income limits for determining how much you can contribute to a Roth IRA have an increase
*Note: contributions can NOT exceed 100% of your income
Filing single or head of household, you can contribute the full $6,000 to a Roth IRA if your MAGI is $125,000 or less (up from $124,000 in 2020).
50 or older: $7,000
Filing married or joint return, you can a full contribution if your MAGI is $198,000 or less (up from $196,000 in 2020)
Employer retirement plan limits
Most retirement plans have remained unchanged since 2020.
The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan remains $195,000 in 2021. The limit also applies to the 403(b) and 457(b) plans, as well as the Federal Thrift Plan.
50 or older, you can make a catch-up contribution of up to $6,500 to these plans in 2021. [Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.]
*Note: contributions can NOT exceed 100% of your income
SIMPLE plans are included in this aggregate limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan — a total of $39,000 in 2021 (plus any catch-up contributions).
The maximum amount that can be allocated to your account in a defined contribution plan [for example, a 401(k) plan or profit-sharing plan] in 2021 is $58,000 (up from $57,000 in 2020) plus age 50 or older catch-up contributions. This includes both your contributions and your employer's contributions. Special rules apply if your employer sponsors more than one retirement plan.
Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans in 2021 is $290,000 (up from $285,000 in 2020), and the dollar threshold for determining highly compensated employees (when 2021 is the look-back year) remains $130,000 (unchanged from 2020).
Creating a tax-free retirement plan can help protect your savings. We specialize in creating plans that minimize our clients’ retirement income taxes.
For a free consultation, please call (716) 906-8121