What the annual 2021 IRS limits mean for your retirement plan

The IRS sets annual limits on how much you can contribute to different types of retirement plans, updating them annually to account for inflation. To make sure you’re making the most of your retirement plans, we’ve outlined key limits for 2021 and what they mean for you and your ability to maximize your savings.

How much you can save in your 401(k) and other employer-sponsored plans

The IRS restricts the dollar amount of contributions and the amount of benefits permitted for qualified and other tax-favored retirement accounts, adjusting them for inflation annually according to Section 415 of the Internal Revenue Code. This means that there are limits to how much you and/or your employer can put into an employer-sponsored retirement plan and other benefit limitations. Although the limits can change quite a bit in some years, the IRS made very few changes this year. Here’s a quick look at key limits for employer-sponsored retirement plans for 2021.

  • The maximum an employee can contribute to 401(k), 457, and 403(b) plans remains unchanged at $19,500.
  • Employees age 50 or older are allowed to save more each year with catch-up contributions. The catch-up contribution maximum for 401(k), 457, and 403(b) plans remains unchanged at $6,500—for a total of $26,000 allowed for those age 50 and older.
  • The maximum annual compensation that an employer can take into account when determining contributions or benefits increases from $285,000 to $290,000.
  • The income threshold for the determination of a key employee for nondiscrimination testing remains unchanged at $185,000.
  • The income threshold for the determination of a highly compensated employee for nondiscrimination testing remains unchanged at $130,000.
  • The total amount of contributions (employee and employer) that can be contributed to a 401(k) or like defined contribution plan increases to the lesser of $58,000 or 100% of an employee’s compensation. (The previous limit was the lesser of $57,000 or 100% of an employee’s compensation.)
  • The maximum annual benefit an employee can receive from a defined benefit (DB) pension plan remains unchanged at $230,000.
  • The minimum compensation amount for participation by an employee in a simplified employee pension plan increases from $600 to $650.
  • The maximum elective pretax contributions (deferrals) an employee can make into a SIMPLE retirement account remains unchanged at $13,500.
  • The SIMPLE 401(k) or SIMPLE IRA catch-up limit for employees age 50 or older remains unchanged at $3,000.

How much you can save in traditional and Roth IRAs

The IRS also limits what you can contribute each year to IRAs, both traditional and Roth: 

  • The maximum amount you can contribute to an IRA (traditional, Roth, or a combination of the two) remains unchanged at $6,000 (for those eligible to contribute).
  • The additional catch-up contribution limit, if you’re age 50 or over, remains unchanged at $1,000.

Income levels limit the amount of deductible contributions to a traditional IRA

If you’re eligible for an employer-sponsored retirement plan, income-based phaseout ranges and income-tax filing status control how much you can deduct from your income for a traditional IRA contribution. The phaseout ranges for determining the deductibility of traditional IRA contributions is inapplicable if neither you nor your spouse is covered by a qualified plan during the year.  

Traditional IRA contribution phaseout ranges

Taxpayer filing status

Adjusted gross income phaseout range

 

2021

2020

Single taxpayer covered by a retirement plan

$66,000–$76,000

$65,000–$75,000

Married individual filing jointly and IRA contributor is covered by a retirement plan

$105,000–$125,000

$104,000–$124,000

IRA contributor who isn’t covered by a qualified retirement plan is married to someone who’s covered by a retirement plan

$198,000–$208,000

$196,000–$206,000

Married individual filing a separate tax return and is covered by a retirement plan

$0–$10,000

$0–$10,000

Separate income levels limit if and how much you can contribute to a Roth IRA.  

Roth IRA contribution phaseout ranges

Taxpayer filing status

Adjusted gross income phaseout range

 

2021

2020

Single taxpayer and head of household

$125,000–$140,000

$124,000–$139,000

Married individual filing jointly

$198,000–$208,000

$196,000–$206,000

Married individual filing a separate tax return

$0–$10,000

$0–$10,000

How to include the limits in your retirement planning and where to get more information

IRS contribution limits for 401(k)s and most employer-sponsored plans won’t change in 2021, so if you’re contributing as much as the law allows now, you don’t need to adjust your employer plan contribution rate for next year, unless your income changes. But if you’re not contributing to the limit, consider increasing your contributions to maximize your retirement savings. And if you’re saving in an IRA, increased phaseout ranges mean that you may pay a little less in taxes—or may be eligible to make or increase Roth IRA contributions—in 2021.

For further details on IRS retirement plan limits for 2021, refer to IRS Notice 2020-79.

Please note that the annual contribution rates are based on the IRS 2021 retirement plan limits and can be subject to change. 

The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein

MGR1029201387139                                   MGTS-P 43507-GE 10/20-43507

 

Tami Guimelli

Tami Guimelli, 

Assistant Vice President and Assistant General Counsel

John Hancock Retirement

Read bio