Every year, the IRS adjusts its retirement savings rules. Keeping up with those adjustments is usually good for your savings progress -- especially if you've been flirting with any of the IRS-imposed limits surrounding retirement contributions, or if you'll qualify for catch-up contributions this year.
Here are the essential retirement savings facts to know for 2021. Use them to maximize your contributions and move a step closer to the easygoing retirement you want.
2021 401(k) contribution limits
This year, you can contribute up to $19,500 from your paycheck into your 401(k). If you will be 50 or older before year-end, you are also allowed an additional $6,500 in catch-up contributions. These limits apply only to the amounts deferred directly from your paycheck, including any Roth 401(k) contributions.
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There are also separate limits for total contributions, which include employer match plus any nonelective employer deposits. These primarily affect business owners and self-employed people with their own 401(k) plans. In 2021, your total 401(k) contributions can't be more than $58,000 or $64,500 including catch-up contributions if you will be 50 by year-end. Your total contributions also can't be more than your salary. That means if your compensation in 2021 is $45,000, your total contribution limit would also be $45,000, instead of the $58,000 plus catch-up contributions.
2021 HSA limits
The HSA could be the secret weapon in your retirement plan. It's the only account that offers three tax benefits: tax-free contributions, tax-deferred earnings, and tax-free withdrawals for medical expenses. You may even get employer matching contributions, too.
To qualify for HSA contributions, you have to be enrolled in a high-deductible health plan (HDHP). The IRS defines the minimum insurance deductibles a plan needs to be considered an HDHP. In 2021, those minimum deductibles are $1,400 for individual coverage and $2,800 for family coverage.
HDHPs also have to comply with IRS caps on the out-of-pocket expenses you can incur. Those costs include your deductibles, copayments, and coinsurance, but not your premiums. In 2021, HDHPs must limit your out-of-pocket costs to $7,000 on individual plans and $14,000 on family plans.
If your health plan meets those requirements, you can contribute up to $3,600 to an HSA if your insurance only covers you, or $7,200 if your plan covers your family.
2021 IRA contribution and income limits
IRA contribution limits didn't change this year. You can still contribute $6,000 plus an additional $1,000 if you qualify for catch-up contributions. The cap applies to cumulative deposits made to all of your IRA accounts, traditional or Roth. In other words, if are younger than 50 and you put $4,000 in your traditional IRA, you can only send a maximum of $2,000 to your Roth IRA.
Your Roth IRA contribution, however, will be limited or even prohibited if you earn more than $125,000 as a single filer or $198,000 as a married filer this year. See the table below for Roth IRA contributions guidelines by filing status and income.
|
Filing Status |
Income (Modified AGI) |
Contribution Allowed |
|---|---|---|
|
Single |
Less than $125,000 |
Up to the contribution limit |
|
Single |
$125,000 up to less than $140,000 |
Reduced from the contribution limit |
|
Single |
$140,000 or more |
No contribution allowed |
|
Married, Filing Jointly |
Less than $198,000 |
Up to the contribution limit |
|
Married, Filing Jointly |
$198,000 up to less than $208,000 |
Reduced from the contribution limit |
|
Married, Filing Jointly |
$208,000 or more |
No contribution allowed |
Data source: IRS.
You can contribute to a traditional lRA with any income, but your salary could affect the tax deductibility of those contributions. This situation arises only when you or your spouse has access to a workplace 401(k). In that case, you can still make traditional IRA contributions up to the limit, but your income determines whether you get a tax deduction for those contributions. These income limits are shown in the table below.
|
Your Filing Status |
401(k) Participant |
Income (Modified AGI) |
Deduction Allowed |
|---|---|---|---|
|
Single |
You |
$66,000 or less |
Full deduction |
|
Single |
You |
more than $66,000 and less than $76,000 |
Partial deduction |
|
Single |
You |
$76,000 or more |
No deduction |
|
Married, Filing Jointly |
You |
$105,000 or less |
Full deduction |
|
Married, Filing Jointly |
You |
more than $105,000 and less than $125,000 |
Partial deduction |
|
Married, Filing Jointly |
You |
$125,000 or more |
No deduction |
|
Married, Filing Jointly |
Your spouse |
$198,000 or less |
Full deduction |
|
Married, Filing Jointly |
Your spouse |
more than $198,000 and less than $208,000 |
Partial deduction |
|
Married, Filling Jointly |
Your spouse |
$208,000 or more |
No deduction |
Data source: IRS.
Work the limits
You'll likely have to pick and choose where you save your retirement dollars this year. Consider putting enough in your 401(k) to capture all available employer matching contributions. From there, it's smart to invest in an HSA if you qualify. The HSA lowers the cost of healthcare by offering tax-free withdrawals to pay your medical bills. You can also take taxable distributions for any purpose after age 65, so this account can function as a backup to your 401(k).
An IRA is your best option if you don't have a workplace plan. It's smart to save to a taxable brokerage account, too, since the IRA contribution limits are quite low.
