Please find below the 2021 contribution ceilings for IRAs and 401(k) plans. These ceilings and limitations for contributions to retirement plans are not to be taken lightly. Penalties (excise taxes) for overfunding some retirement plans are absolutely shocking. And, the penalties are incurred annually until the excess funds are removed.
Bad News on IRA and 401(k) Contribution Limits for 2021
Retirement savers will be disappointed with the contribution limits for next year, but at least more people will qualify for retirement tax breaks in 2021.
There's good news and bad news from the IRS for Americans saving for retirement with IRAs, 401(k)s, and other retirement accounts in 2021.
Let's start with the bad news: Contribution limits won't go up next year.
And now the good news: The maximum income levels allowed to make deductible contributions to traditional IRAs, contribute to Roth IRAs, and claim the Saver's Credit all increase for 2021.
Retirement Plan Contribution Limits for 2021
For 2021, employees who are saving for retirement through 401(k)s, 403(b)s, most 457 plans, and the federal government's Thrift Savings Plan can contribute up to $19,500 to those plans during the year. That's the same contribution limit in place for 2020.
Income Ranges for 2021
Increased income ranges for the traditional IRA deduction, Roth IRA contributions, and the Saver's Credit means more Americans will qualify for these tax breaks.
If you're contributing to a traditional IRA, the deduction allowed for your contribution is gradually phased-out if your income is above a certain amount. For 2021, the phase-out ranges are:
- $66,000 to $76,000 for a single person covered by a workplace retirement plan (up from $65,000 to $75,000 in 2020);
- $105,000 to $125,000 for a married couple filing jointly if the spouse making the IRA contribution is covered by a workplace retirement plan (up from $104,000 to $124,000 in 2020);
- $198,000 and $208,000 for a married couple if the spouse contributing to an IRA is not covered by a workplace retirement plan and the other spouse is covered (up from $196,000 and $206,000 in 2020); and
- $0 to $10,000 for a married person filing a separate return who is covered by a workplace retirement plan (the same as 2020 because this range is not subject to an annual cost-of-living adjustment).
For people saving for retirement with a Roth IRA, the actual amount that you can contribute to the account is based on your income. To be eligible to contribute the maximum for 2021, your modified adjusted gross income must be less than $125,000 if single or $198,000 if married and filing jointly (up from $124,000 and $196,000, respectively, for 2020). Contributions begin to be phased out above those amounts, and you won't be able to put any money into a Roth IRA in 2021 once your income reaches $140,000 if single or $208,000 if married and filing jointly ($139,000 and $206,000 for 2020). The phase-out range for a married person filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000 for 2021.
Finally, the 2021 income limit for the Saver's Credit for low- and moderate-income workers is $66,000 for married couples filing jointly ($65,000 in 2020), $49,500 for head-of-household filers ($48,750 in 2020), and $33,000 for singles and married people filing separately ($32,500 in 2020).
Credit given to: Rocky Mengle. Published on November 5, 2020.
Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.
This Week’s Author, Mark Bradstreet, CPA