Contributed by: Robert Ingram, CFP®
For the New Year, the IRS had released its updated figures for retirement account contribution and income eligibility limits. While most contribution limits remain unchanged from 2020, there are some small adjustments for 2021 certainly worth noting.
Employer retirement plan contribution limits stay largely the same (401k, 403b, 457, and Thrift Savings)
$19,500 annual employee elective deferral contribution limit (same as 2020)
$6,000 “catch-up” contribution if over the age of 50 (same as 2020)
The total amount that can be contributed to the defined contribution plan including all contribution types (e.g. employee deferrals, employer matching, and profit-sharing) is $58,000 or $64,500 if over the age of 50 (increased from $57,000 or $63,500 for age 50+ in 2020)
Traditional, Roth, SIMPLE, and SEP IRA contribution limits
$6,000 annual employee elective deferral contribution limit (same as 2020)
$6,000 “catch-up” contribution if over the age of 50 (same as 2020)
Traditional IRA deductibility income limits
Contributions to a traditional IRA may or may not be tax-deductible depending on your tax filing status, whether you are covered by a retirement plan through your employer, and your Modified Adjusted Gross Income (MAGI). The amount of a traditional IRA contribution that is deductible is reduced or “phased out” as your MAGI approaches the upper limits of the phase-out range. For example:
Single Filer
Covered under a plan
Partial deduction phase-out begins at $66,000 up to $76,000 (then above this no deduction) compared to 2020 (phase-out: $65,000 to $75,000)
Married filing jointly
Spouse contributing to the IRA is covered under a plan
Phase-out begins at $105,000 to $125,000 (compared to 2020: $104,000 to $124,000)
Spouse contributing is not covered by a plan, but other spouse is covered under the plan
Phase-out begins at $198,000 to $208,000 (compared to 2020: $196,000 to $206,000)
Roth IRA contribution income limits
Similar to making deductible contributions to a traditional IRA, being eligible to contribute up to the maximum contribution to a Roth IRA depends on your tax filing status and your MAGI. Your allowable contribution is reduced or "phased out" as your MAGI approaches the upper limits of the phase-out range. For 2021 the limits are as follows:
Single filer
Partial contribution phase-out begins at $125,000 to $140,000 (compared to 2020: $124,000 to $139,000)
Married filing jointly
Phase-out begins at $198,000 to $208,000 (compared to 2020: $196,000 to $206,000)
If your income is over the limit and you cannot make a regular annual contribution, using a Roth IRA Conversion in different ways may be an appropriate strategy depending on your circumstances.
As we begin 2021, keep these updated figures on your radar when reviewing your retirement savings opportunities and updating your financial plan. However, as always, if you have any questions surrounding these changes, don’t hesitate to reach out to our team!
Have a happy and healthy New Year!
Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.