[Updated in August 2020 after July inflation release.]
Retirement plan contribution limits are adjusted for inflation each year. While inflation dipped in April due to the COVID-19 pandemic, it has rebounded in recent months. The contribution limits for 2021 are no longer at risk of going down. Most of the limits will stay the same as in 2020. Some income limits will go up slightly.
Before the IRS publishes the official numbers in October or November, I’m able to make my own calculations using the published inflation numbers and going by the same rules the IRS uses as stipulated by law. Before I have the inflation numbers for all the months used in the formula, due to rounding rules I can project the contribution limit for next year with high confidence. The inflation numbers in the months to come just aren’t able to make the limits cross another rounding threshold. For example when the law says a limit must be rounded down to the nearest $500, and the calculated result comes to $6,200, I know even if it’s off a little, it isn’t going to go below $6,000 or go above $6,500.
I have been able to do early projections with 100% accuracy ever since I started doing them several years ago.
401k/403b/457/TSP Elective Deferral Limit
401k/403b/457/TSP contribution limit will stay the same at $19,500 in 2021 as in 2020. If you are age 50 or over, the catch-up contribution limit will also stay the same at $6,500 in 2021 as in 2020.
Employer match or profit sharing contributions aren’t included in these limits. If you work for multiple employers in the same year or if your employer offers multiple plans, you have one single limit for 401k, 403b, and TSP across all plans. The 457 plan limit is separate. You can contribute the maximum to both a 401k/403b/TSP plan and a 457 plan.
Annual Additions Limit
The total employer plus employee contributions to all defined contribution plans by the same employer will increase by $1,000 from $57,000 in 2020 to $58,000 in 2021. The age-50-or-over catch-up contribution is on top of this limit. If you work for multiple unrelated employers in the same year, you have separate limits at each employer.
Annual Compensation Limit
The maximum annual compensation that can be considered for making contributions to a retirement plan is always 5x the annual additions limit. Therefore the annual compensation limit will increase by $5,000 from $285,000 in 2020 to $290,000 in 2021.
Highly Compensated Employee Threshold
If your employer limits your contribution because you are a Highly Compensated Employee (HCE), the minimum compensation will stay the same at $130,000 in 2021 as in 2020.
SIMPLE 401k and SIMPLE IRA Contribution Limit
SIMPLE 401k and SIMPLE IRA plans have a lower limit than standard 401k plans. The contribution limit for SIMPLE 401k and SIMPLE IRA plans will stay the same at $13,500 in 2021 as in 2020. If you are age 50 or over, the catch-up contribution limit will also stay the same at $3,000 in 2021 as in 2020. Employer contributions aren’t included in these limits.
Traditional and Roth IRA Contribution Limit
Traditional and Roth IRA contribution limit will stay the same at $6,000 in 2021 as in 2020. The age 50 catch-up limit is fixed by law at $1,000 in all years. The IRA contribution limit and the 401k/403b/TSP or SIMPLE contribution limit are separate. You can contribute the respective maximum to both a 401k/403b/TSP/SIMPLE plan and a traditional or Roth IRA.
Deductible IRA Income Limit
The income limit for taking a full deduction for your contribution to a traditional IRA while participating in a workplace retirement will increase by $1,000 for singles, from $65,000 in 2020 to $66,000 in 2021, and it will also increase by $1,000 for married filing jointly, from $104,000 in 2020 to $105,000 in 2021. The deduction completely phases out when your income goes above $75,000 in 2020 and $76,000 in 2021 for singles; and $124,000 in 2020 and $125,000 in 2021 for married filing jointly.
The income limit for taking a full deduction for your contribution to a traditional IRA when you are not covered in a workplace retirement but your spouse is will go up by $2,000 for married filing jointly from $196,000 in 2020 to $198,000 in 2021. The deduction completely phases out when your joint income goes above $206,000 in 2020 and $208,000 in 2021.
Roth IRA Income Limit
The income limit for contributing the maximum to a Roth IRA will go up by $1,000 for singles from $124,000 in 2020 to $125,000 in 2021. It will go up by $2,000 for married filing jointly from $196,000 in 2020 to $198,000 in 2021. You can’t contribute anything directly to a Roth IRA when your income goes above $139,000 in 2020 and $140,000 in 2021 for singles, and $206,000 in 2020 and $208,000 in 2021 for married filing jointly, up by $1,000 and $2,000 respectively in 2021. You can still do a backdoor Roth IRA in such case.
Healthcare Flexible Spending Account Contribution Limit
The Healthcare FSA contribution limit will stay the same at $2,750 per person in 2021 as in 2020.
Health Savings Account Contribution Limit
The HSA contribution limit for single coverage will go up by $50 from $3,550 in 2020 to $3,600 in 2021. The HSA contribution limit for family coverage will go up from $7,100 in 2020 to $7,200 in 2021. These were announced previously in the spring. Please see 2019 2020 2021 HSA Contribution Limits.
Those who are 55 or older can contribute additional $1,000. If you are married and both of you are 55 or older, each of you can contribute the additional $1,000, but to separate HSAs in each person’s name.
Saver’s Credit Income Limit
The income limits for receiving a Retirement Savings Contributions Credit (“Saver’s Credit”) will increase in 2021. For married filing jointly, it will be $39,000 in 2020 and $39,500 in 2021 (50% credit), $42,500 in 2020 and $43,000 in 2021 (20% credit), and $65,000 in 2020 and $66,000 in 2021 (10% credit). The limits for singles will be at half of the limits for married filing jointly, at $19,500 in 2020 and $19,750 in 2021 (50% credit), $21,250 in 2020 and $21,500 in 2021 (20% credit), and $32,500 in 2020 and $33,000 in 2021 (10% credit).
|Limit on employee contributions to 401k, 403b, or 457 plan||$19,500||$19,500||None|
|Limit on age 50+ catchup contributions to 401k, 403b, or 457 plan||$6,500||$6,500||None|
|SIMPLE 401k or SIMPLE IRA contributions limit||$13,500||$13,500||None|
|SIMPLE 401k or SIMPLE IRA age 50+ catchup contributions limit||$3,000||$3,000||None|
|Highly Compensated Employee definition||$130,000||$130,000||None|
|Maximum annual additions to all defined contribution plans by the same employer||$57,000||$58,000||$1,000|
|Traditional and Roth IRA contribution limit||$6,000||$6,000||None|
|Traditional and Roth IRA age 50+ catchup contribution limit||$1,000||$1,000||None|
|Deductible IRA income limit, single, active participant in workplace retirement plan||$65,000 – $75,000||$66,000 – $76,000||$1,000|
|Deductible IRA income limit, married, active participant in workplace retirement plan||$104,000 – $124,000||$105,000 – $125,000||$1,000|
|Deductible IRA income limit, married, spouse is active participant in workplace retirement plan||$196,000 – $206,000||$198,000 – $208,000||$2,000|
|Roth IRA income limit, single||$124,000 – $139,000||$125,000 – $140,000||$1,000|
|Roth IRA income limit, married filing jointly||$196,000 – $206,000||$198,000 – $208,000||$2,000|
|Healthcare FSA Contribution Limit||$2,750||$2,750||None|
|HSA Contribution Limit, single coverage||$3,550||$3,600||$50|
|HSA Contribution Limit, family coverage||$7,100||$7,200||$100|
|HSA, age 55 catch-up||$1,000||$1,000||None|