Contribution Limits for 2021

The IRS announced that employee contribution limits on 401(k)s and other qualified retirement accounts would remain the same in 2021. The deferral limit for individuals under the age of 50 is $19,500. The catch-up for individuals over age 50 will be $6,500. The total contribution limit (from all sources) is increasing by $1,000 to $58,000 in 2021 (and $64,500 including catch up). Though the employee deferral is unchanged, business owners with I401(k)s can gain additional benefit by the small increase in total contributions.

IRA and Roth IRA contribution limits will remain unchanged ($6,000 for individuals under 50 and $7,000 for individuals over 50). However, income limitations on contributions will change. For joint filers with an adjusted gross income (AGI) under $125,000 can receive a deduction for IRA contributions ($76,000 for a single filer). Deductions phase out for joint filers starting at an AGI of $105,000 and an AGI of $66,000 for single filers. There is no income limitation on making a non-deductible IRA contribution. Ideally, a non-deductible IRA contribution is immediately converted (tax-free) into a Roth IRA. However, taxpayers face pro-rata issues if there is both pre-tax money and non-deductible contributions in a traditional IRA simultaneously. Roth IRA income limitations on making contributions will increase to $198,000 for joint filers (up from $196,000 / 2020) and completely phases out at $208,000 ($125,000 to $140,000 for single filers).

HSA annual contribution limits get a small bump from $3,550 self-only and $7,100 family to $3,600 and $7,200. The catch-up contribution remains $1,000 (the HSA catch-up age is 55 instead of 50). The minimum deductible required for a plan to be HSA eligible has remained $1,400 for self and $2,800 for family.

There was little movement in contribution and income limits for 2021. Even though the IRS reviews cost of living adjustments (COLA) for contributions every year, sometimes the change is not significant enough to warrant an increase in limits for the upcoming year. With that in mind, we may see larger increases in limits in 2022 and 2023.

Full details on all changes can be found on the IRS website:

https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions