2021 Retirement Savings Limitations
On October 26, 2020, the IRS issued Notice 2020-79, which contains the 2021 IRA and retirement savings plan limitations. Several limitations will increase for 2021, as will the “saver’s credit” income amounts.
IRA Contribution Amounts
Annual limitations for IRA contributions and deductibility for those who are active participants in employer-sponsored retirement plans are subject to annual cost-of-living adjustments (COLAs) and are as follows for 2021.
Traditional and Roth IRA contributions: $6,000 (unchanged) plus $1,000 catch-up contribution (not subject to COLAs)
Traditional IRA deductibility phase-out for single taxpayers participating in employer plans rises to $66,000 to $76,000 (was $65,000 to $75,000)
Traditional IRA deductibility phase-out for married joint filing taxpayers participating in employer plans rises to $105,000 to $125,000 (was $104,000 to $124,000)
Traditional IRA deductibility phase-out for married with spouse an active participant in employer plan rises to $198,000 to $208,000 (was $196,000 to $206,000)
Roth IRA income phase-out for determining maximum contribution for married joint filers rises to $198,000 to $208,000 (was $196,000 to $206,000)
Roth IRA income phase-out for determining maximum contribution for single filers and heads-of-households rises to $125,000 to $140,000 (was $124,000 to $139,000)
Employer-Sponsored Retirement Plans
The following are key employer-sponsored retirement plan limitations that affect defined contribution plans (e.g., 401(k) plans), defined benefit plans, 403(b) plans, governmental 457(b) plans, simplified employee pension (SEP) plans, and savings incentive match plan for employees of small employers (SIMPLE) IRA plans. These are subject to annual COLAs and are as follows for 2021.
Annual additions under Internal Revenue Code Section (IRC Sec.) 415(c)(1)(A) for defined contribution plans: $58,000 ($57,000 for 2020)
Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit pension plans: $230,000 (unchanged)
Annual deferral (402(g)) limit for 401(k), 403(b), and 457(b) plans: $19,500 (unchanged)
Catch-up contributions to 401(k), 403(b), and 457(b) plans: $6,500 (unchanged)
·Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $13,500 (unchanged)
Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,000 (unchanged)
IRC Sec. 401(a)(17) compensation cap: $290,000 ($285,000 for 2020)
Highly compensated employee (HCE) definition income threshold: $130,000 (unchanged)
Top-heavy determination key employee definition income threshold: $185,000 (unchanged)
SEP plan employee income threshold for benefit eligibility: $650 ($600 for 2020)
Qualifying longevity annuity contract (QLAC) amount excludible from required minimum distribution determinations: $135,000 (unchanged)
Contribution Tax Credit
The adjusted gross income limits associated with the “saver’s credit,” a tax credit for IRA contributions and deferrals in retirement plans, will increase for 2021. See IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), for more information, including a definition of adjusted gross income.
Taxpayers who make contributions to IRAs or deferral-type employer-sponsored retirement plans of up to $2,000 may be eligible for a saver’s credit of 10, 20, or 50 percent of the amount contributed, depending on their income.
For joint filers, the maximum adjusted gross income level for
the 50 percent tax credit is $39,500;
the 20 percent tax credit is $43,000; and
the 10 percent tax credit is $66,000.
For head of household filing status, the maximum adjusted gross income level for
the 50 percent tax credit is $29,625;
the 20 percent tax credit is $32,250; and
the 10 percent tax credit is $49,500.
For all other filing statuses, the maximum adjusted gross income level for
the 50 percent tax credit is $19,750;
the 20 percent tax credit is $21,500; and
the 10 percent tax credit is $33,000.
