Retirement Plan Contribution Limits for 2021

Published on December 3, 2020

The IRS has announced 2021 contribution limits in its Notice 2020-79, which covers various types of retirement plans, including workplace retirement plans and individual retirement arrangements (IRAs). These figures apply to regular and self-directed retirement plans. The deadline to contribute to your retirement plan for the 2020 tax year is April 15, 2021.

Contribution limits remain the same. Note that once again, there is no change for Traditional and Roth IRA contribution limits, which remain at $6,000 per account holder per year. Note that taxpayers may be limited in their contribution limits to a Roth IRA, or be prohibited from contributing at all, based on modified adjusted gross income (for single filers and/or those filing jointly), as detailed by the IRS.

Catch-up contributions—the additional retirement plan contributions allowed for taxpayers ages 50 and over–will also remain unchanged:

• For IRAs (Traditional, Roth) – $1,000
• For SIMPLE IRA and SIMPLE 401(k) plans – $3,000
• For 401(k), 403(b), and 457(b) plans – $6,500

Deductibility phase-outs. Depending on income levels and types of retirement plans, taxpayers may be eligible to take a yearly tax deduction for the money they contribute to an IRA each year (this does not apply to a Roth IRA, which is treated differently for tax purposes), but there are criteria for this. Contributions to a SEP or SIMPLE IRA are also deductible but you should consult your tax professional for guidance about those.

For taxpayers who participate in employer retirement plans, there is an IRA deductibility phase-out based on modified adjusted gross income (MAGI); for 2021 this will rise slightly in each category as follows:

• Single taxpayers – $66,000 to $76,000 (up from $65,000 to $75,000)
• Married joint filing taxpayers – $105,000 to $125,000 (was $104,000 to $124,000)
• Married with a spouse who is an active participant in employer plan – $198,000 to $208,000 (formerly $196,000 to $206,000)

Roth IRA eligibility ranges will increase. Because Roth IRA contributions are made on an after-tax basis, the rules are different in terms of eligibility to contribute, based on MAGI:

• For determining the maximum contribution for married joint filers, the phase-out range will be $198,000 to $208,000 (up from $196,000 to $206,000).
• For determining the maximum contribution for single filers and heads-of-households, the phase-out range rises to $125,000 to $140,000 (up from $124,000 to $139,000)

Employer-sponsored plans. Most but not all workplace retirement plans will not see a change in annual additions, deferral limits, and other criteria. For example, defined contribution plan additions increase to $58,000 (up $1,000 from 2020) but there is no change for defined benefit pension plans. Certain income thresholds will go up. Your employer plan administrator should have that information available to you.

Potential tax credits. Taxpayers who make contributions to IRAs or deferral-type employer-sponsored retirement plans of up to $2,000 may be eligible for a special income tax credit, referred to as the “saver’s credit.” Depending on modified adjusted gross income, it could be 10, 20, or 50 percent of the amount contributed, and differs for joint filers, heads of households, and singles.

Potential retirement wealth boosters—self-directed IRAs

Whether you’ve already contributed your maximum allowed amount for 2020 or you are still making contributions to your retirement plan, you can boost your retirement savings with a self-directed IRA. Whether Traditional or Roth, SEP or SIMPLE, self-directed retirement plans put you in control of your investments by allowing you to include a broad range of alternative assets in your account. For individuals who are comfortable making all their own investment decisions, are able to conduct full due diligence about nontraditional investments, and want to create a hedge against stock market volatility, a self-directed IRA can be a powerful tool to build a more diverse retirement portfolio.

Read more about the many options and benefits of self-direction on our FAQs page.  If you have questions about this retirement strategy, you can arrange a complimentary educational session; or contact our team directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.