2021 Retirement Plan Contribution Limits

Daniel Penzing
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Employer-Sponsored Retirement Plan Limits

If you are in paid work, you probably pay attention to your salary and salary increases, but there are many other terms related to your job that you may not care about. This is because you may not need to think about them, and this is a good thing.

For instance, if we consider one of the terms, it is the one related to retirement plans. This term has many different parts and based on these parts, the whole picture may look confusing and hard to understand. It is necessary to know what you really need to know from this term, but even the phrases that sound quite complicated don’t have to be. Below you will learn everything you need to know about the 2021 retirement plan contribution limits.

Types of Employer-Sponsored Plans

Understandably, you may wonder why there is a term related to retirement plans. While retirement may seem to be a distant time in your future, the reality is that your employer has a retirement plan, and you are an employee.

This means that you and your employer have different retirement plans, but there is also equal collaboration. These are employer-sponsored pension plans, which means that your employer is sponsoring these plans by covering the costs while you still have a say regarding the fund.

Traditional IRA Income Limits

Roth IRA Income Limits

Limits for most retirement plans are based on the taxpayer’s filing status. This is usually expressed as the range of the modified adjusted gross income for joint filers, for example. Solo filers can generally use the “Single ” range or the next highest range in the case of a married filing separately status.

You can use the IRS retirement plan tool to figure out the limits for you.

SEP IRA, SIMPLE IRAs, and Solo 401(k) Plans

SEP IRA and SIMPLE IRA plans are relatively simple retirement plans that make it easy for small-business owners to get started with their retirement planning without much paperwork. Solo 401(k) plans also provide some attractive retirement tools for the self-employed, including a way to make much larger contributions than the other individual retirement plans.

Here are the maximum annual contribution limits for each type of plan. (Note: For most individual retirement plans, the overall limit is generally 100% of your salary, but the limit on the amount that can be contributed to a SIMPLE is reduced to 25% of compensation below a certain level.)

Check your retirement income:

Retirement plan participants reaching age 50 and older should determine whether their participants in a workplace retirement plan is enough to meet their retirement income needs. For many, there will be some additional steps necessary (but many will not be aware of these additional steps).

Explore these 5 steps for a review of how to determine whether your income will meet your needs:

{1}. Determine your estimated retirement plan account balance.
{2}. Identify monthly retirement income annuity levels that serve as thresholds of comfort levels.
{3}. Identify potential annuity payout options for incorporating income.
{4}. Identify potential tax consequences for additional income sources.
{5}. Identify opportunities to defer taxes on adjustments to income.

NOTE: That the following contribution limits published by IRS represent the maximum allowable contribution for the 2018 tax year for each participant. Unless employers provide different limits, the following limits will be the maximum deferrals for each individual, their spouse, and nondeductible contributions to all plans of their employers.

Maximum contribution levels for each plan vary and are subject to IRS regulations and your employer’s plan.

2021 Retirement Contribution Limits Table

RETIREMENT SAVINGS PLAN (401(k), 403(b), SIMPLE Retirement Plan) CONTRIBUTIONS.

If you are an employee participating in a 401(k), 403(b), or the government’s payroll deduction Simple Retirement plan, you can defer a portion of your pretax income (up to 100 percent of your compensation, as shown in the following table for tax year 2018.

If your employer allows catch-up contributions, also known as salary reduction contributions, and if you are age 50 or older, you may elect to defer an additional amount of your pretax income to each plan. Any catch-up contributions you make can be made to all of the plans in which you participate.

The maximum contribution to all of the plans in which you participate cannot exceed 100 percent of your compensation.

EARNED INCOME LIMIT DEFINED: Salary and wages (including tips & bonuses)

Retirement Saver's Credit Changes

The— Retirement Saver's Credit Changes— to the Individual Taxpayer Identification Number (ITIN) Application Rules (—ITIN Rules——), effective March 23, 2018, have made it easier for taxpayers to claim the Retirement Saver's Credit (the Credit) for the 2018 and 2019 tax years. These provisions are effective with original ITIN applications submitted on or after March 23, 2018, and effective with original ITIN renewals submitted on or after April 30, 2018.

The ITIN Rules limit use of an individual's ITIN to only one primary taxpayer. The IRS changed the definition of “primary taxpayer” to refer to the applicant head of household, instead of the applicant's spouse. The changes align the definition of primary taxpayer by applying the new improved joint-filing rules to the Credit.

The Credit is available for taxpayers who are U.S. citizens or resident aliens, and have earned income. For the Credit amount, the basic reduction in the income tax withholding rate from 25% to 22% for people aged 65 or older applies. Even with the increase in Social Security benefits, the Credit is still very valuable, and may be claimed by those who do not itemize their deductions on Form 1040.