Few Retirement Account Limits Will Rise Next Year

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Savers hoping to be able to sock away more money in retirement accounts in 2021 than they could in 2020 are out of luck.

Most contribution limits for common workplace retirement and individual retirement accounts, or IRAs, are subject to inflation adjustments. But for the 2021 tax year, none will budge.

The IRS announced Oct. 26 that the contribution limits for these accounts will not increase for 2021, meaning the year for which your tax return is due by April 2022.

Most income limits for IRAs — which determine whether and how much you can contribute to an IRA — will increase, however.

Contribution limits for workplace plans

For 2021, the base contribution limit for the following types of workplace retirement accounts will remain $19,500, the same as it was for 2020:

  • 401(k) plans
  • 403(b) plans
  • Most 457 plans
  • Thrift Savings Plan

The base contribution limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts also will remain the same: $13,500.

Catch-up limits for workplace plans

Each year, folks who are 50 or older can save more money in their tax-sheltered retirement accounts by also making additional contributions, known as “catch-up contributions.”

For 2021, the catch-up contribution limit for the following types of workplace retirement accounts will remain $6,500, the same as it was for 2020.

  • 401(k)
  • 403(b)
  • Most 457 plans
  • Thrift Savings Plan

This means that someone who is at least 50 years old could contribute $19,500 plus $6,500 to those types of accounts — for a total of $26,000 — in 2021, as was the case the prior year.

Contribution and catch-up limits for IRAs

The base contribution limit for individual retirement accounts remains the same as it has been since the 2019 tax year: $6,000.

The catch-up contribution limit for IRAs also remains the same, at $1,000. The IRS notes that this is because the catch-up limit for IRAs is not subject to an annual cost-of-living adjustment, unlike various other types of retirement accounts.

Income limits for IRAs

Income limits for IRAs will change for 2021. These limits determine whether you’re eligible to contribute at all to a Roth IRA and whether you can make tax-deductible contributions to a traditional IRA.

The income phase-out ranges for Roth IRA contributions will increase as follows for 2021:

  • Single and head of household tax-filing statuses: $125,000 to $140,000 — up from $124,000 to $139,000
  • Married couple filing a joint return: $198,000 to $208,000 — up from $196,000 to $206,000
  • Married couple filing separate returns: $0 to $10,000 — unchanged

This means that a single taxpayer, for example, who earns less than $125,000 in 2021 can contribute to a Roth IRA up to the full limit — $6,000 or $7,000, depending on his age. But if that taxpayer earns $125,000 to $140,000, he can contribute only a reduced amount. If he earns more than $140,000, he cannot contribute to a Roth IRA.

The income limits for tax-deductible contributions to a traditional IRA depend not only on your tax-filing status and income but also on whether you or your spouse is covered by a workplace retirement account. For specifics, see the bullet points in the IRS’ announcement.

Wondering how else traditional and Roth IRAs differ? Check out “Which Is Better — a Traditional or Roth Retirement Plan?

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