Savings Contribution Limits: A Look at Key 2021 Account Levels

by Murray Coleman - Wednesday, 02 December, 2020

Before a new year begins, it's probably going to be a good idea to consider any new contribution limits set by the government for various savings vehicles. Reviewing what's allowed in terms of building a nest egg can give you a leg up in planning how best to maximize your savings in a tax-efficient manner and avoiding costly penalties.

Along those lines, officials have proactively established key contribution limits for a new calendar year. The specifics of such adjustments in 2021 are as follows:

Account

Contribution Limit

Catch-Up Contribution

IRAs and Roth IRAs

$6,000

$1,000

401(k), 403(b), 457 plans, SARSEPs

$19,500 in elective deferrals

$6,500

SIMPLE Plans

$13,500

$3,000

SEP IRAs

Lesser of $58,000 or 25% of total compensation

None

HSA Account

Single: $3,600 Family: $7,200

$1,000

Please note that catch-up contributions only apply to individuals who are age 50 or older for IRAs, Roth IRAs, 401(k), 403(b), 457 plans, SARSEPs, and SIMPLE Plans and age 55 or older for HSA accounts.

Also note there is an IRA deduction phase-out for those who are active participants in an employer-sponsored retirement plan, which are the following:

  • If you are Single, Head of Household, or Married Filing Separately (and you did not live with your spouse at any time during the year):
    • If MAGI is <$66,000, you can have a full deduction up to the amount of your contribution limit.
    • If MAGI is > $66,000 but < $76,000, your deduction is reduced. See IRS Publication 590-A to calculate your reduced amount.
    • If MAGI is > $76,000, no deduction is allowed.
  • If you are Married Filing Jointly or Qualifying Widow(er): 
    • If MAGI is <$105,000, you can have a full deduction up to contribution limit.
    • If MAGI is > $105,000 but < $125,000, your deduction is reduced. See Publication 590-A to calculate your reduced amount.
    • If MAGI is > $125,000, no deduction is allowed
  • If you are Married Filing Separately (and you lived with your spouse):
    • If MAGI is < $10,000, your deduction is reduced. See Publication 590-A to calculate your reduced amount.
    • If MAGI is > $10,000, no deduction is allowed
  • If you are a non-active participant married to an active participant: 
    • If MAGI is <$198,000, you can have a full deduction up to your contribution limit.
    • If MAGI is > $198,000 but < $208,000, your deduction is reduced. See Publication 590-A to calculate your reduced amount.
    • If MAGI is > $208,000, no deduction is allowed.

Also, note that there is a Roth IRA phase-out depending on your Modified Adjusted Gross Income (MAGI):

  • If you are single, head of household or married filing separately (and do not live with a spouse):
    • If MAGI is <$125,000, you can contribute up to the limit.
    • If MAGI is > (or =) $125,000 but < $140,000, your contribution limit is reduced. See Publication 590-A to calculate your reduced amount.
    • If MAGI is > (or =) $140,000, you cannot make a contribution to a Roth IRA.
  • If you are married filing jointly or qualifying widow(er): 
    • If MAGI is <$198,000, you can contribute up to the limit.
    • If MAGI is > $198,000 but < $208,000, your contribution limit is reduced. See Publication 590-A to calculate your reduced amount.
    • If MAGI is > (or =) $208,000, you cannot make a contribution to a Roth IRA.
  • If you are married filing separately and you live with your spouse:
    • If MAGI is $0, you can contribute up to the limit.
    • If MAGI is > $0 but < $10,000, your contribution limit is reduced. See Publication 590-A to calculate your reduced amount.
    • If MAGI is > (or =) $10,000, you cannot make a contribution to a Roth IRA.

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, service, or considered to be tax advice. There are no guarantees investment strategies will be successful. Investing involves risks, including possible loss of principal.

This is intended to be informational in nature and should not be construed as tax advice. IFA Taxes is a division of Index Fund Advisors, Inc.