Sorry, but you won't be allowed to kick in more money in 2021 to your 401(k) plan or similar retirement savings plans. The IRS says, as of October 2020, that 401(k) contribution limits 2021 will remain unchanged from 2020's at $19,500.
The $6,500 catch-up contribution limit for employees aged 50 and older also remains unchanged for 2021.
The unchanged contribution caps apply to 401(k), 403(b) and most 457 plans. They also apply to the Thrift Savings Plan for federal workers.
Yet you still have time to take advantage of 2020's 401(k) contribution limits. Those are higher than 2019's. But you'd better hurry.
401(k) Contribution Limits 2021: You've Got Time
You've got about two months left in 2020 to jack up your contribution level, if your employer lets you. And chances are you are not yet saving the maximum allowed. During 2019, only 12% of members of 401(k) plans overseen by Vanguard were ponying up the basic maximum permitted. And only 15% of plan members age 50 or older took advantage of their right to kick in up to another $6,000.
Taking advantage of opportunities to contribute to your 401(k) account matters. Turbocharged by tax deductions and tax-deferred earnings, 401(k) plans are the most common retirement savings plans in the U.S., says the American Benefits Council. One key survey shows that 401(k) and similar plans are the only retirement savings programs offered to new hires by 81% of firms.
So how much can you put into your 401(k)? What are the 401(k) contribution limits for 2021 and 2020?
401(k) Contribution Limits 2021: How They Differ From 2020 And 2019
The 401(k) contribution limit for 2021 stays flat with 2020. The IRS lifted basic 401(k) contribution limits for 2020 to $19,500. And it raised the catch-up contribution cap for the first time in five years.
If you're aged 50 or older, 2020 was even more of a boon for your 401(k). The so-called catch-up contribution limits, for older workers, also rose to $6,500 for 2020. Before this year, catch-up contributions stayed the same, $6,000, from 2015 through 2019.
401(k) Contribution Limits If You're Age 50, Older
The higher catch-up contribution ceiling in 2020 is especially helpful to older plan members who are trying to close the gap between how much they've saved and their target amount, and are running out of time before they plan to retire. They're trying to catch up to the balance they need — which is where the nickname "catch-up" contribution comes from.
Tax rules limit annual 401(k) contribution increases to increments of $500 or more. Inflation must rise by enough to trigger increases of at least that much, based on a formula the IRS uses.
The new 401(k) contribution limits apply to regular 401(k) accounts and to Roth-style accounts, if your company's retirement plan permits them.
Does The Contribution Limit Include My Company Match?
The annual 401(k) contribution limits above are for employees. Additional, separate limits apply to amounts contributed by employers. Those are made as matching contributions by the employer or as profit-sharing contributions.
Can I Put 100% Of My Salary Into My 401(k)?
In 2020, the combined cap on 401(k) contributions by plan members and employers is 100% of the worker's compensation or $57,000, whichever is lower, or $63,500 for workers who are 50 or older.
401(k) Contribution Limits In Roth-Style Accounts
The IRS calls a Roth-style 401(k) account a designated Roth account.
Roth accounts within your 401(k) take after-tax contributions. That means any money you put into a Roth 401(k) is not tax-deductible. That's different from contributions to a regular 401(k) account. Those are deductible, reducing your taxable income.
However, like withdrawals from a Roth IRA, withdrawals from a Roth 401(k) account are tax free (you already paid tax on the contributions). And earnings inside regular as well as Roth 401(k) accounts are not taxed. A Roth 401(k) might make sense for you depending on your situation.
The same contribution limits apply to 403(b) plan accounts and to most 457 plans, as well as to the federal government's Thrift Savings Plan for its workers.
What's Are 401(k) Contribution Limits For Solo 401(k) Plans?
A Solo 401(k) is a 401(k) for Americans who own a small business that has no full-time employees other than themselves and their spouse.
Solo 401(k) contribution limits are, basically, the same as for other types of 401(k) accounts. The combination of contributions by your business and your own salary contributions may not exceed $57,000 for 2020 or $63,500 if aged 50 or older. Those are up from $56,000 and $62,000 in 2019.
How Much Can A Married Couple Contribute To A 401(k)?
The amount you contribute to your own 401(k) does not impact the amount your spouse can kick into his or her own 401(k), if you both are members of 401(k) plans at work.
Both of you can contribute up to the annual maximum 401(k) contribution limits allowed. In 2020, that's $19,500 plus up to an additional $6,500 if each of you is age 50 or older.
And both of you are eligible for company contributions, if your employer offers any.
What Are 401(k) Contribution Limits If I Have An IRA?
You can contribute to both a 401(k) account and an IRA. And you can contribute up to the maximum contribution limits allowed in both cases regardless of your income. You can put up to $6,000, or $7,000 with a catch-up contribution, into a traditional or Roth IRA for 2020. You can even contribute to both types of IRA, but the combined total IRA contributions must not exceed $6,000 or $7,000 if it applies.
And there are strict restrictions from a tax deduction standpoint. Your ability to get a tax deduction for your contribution to a traditional IRA may be limited if you earn too much.
Here's how it works: If you or your spouse have a 401(k), you may be allowed to deduct only part of your contribution to a traditional IRA, depending on your income. If your income is too high, you may not be allowed to deduct any of your traditional IRA contribution.
Suppose you're single. In 2020, you can take a partial deduction if your modified adjusted gross income (MAGI) is between $65,000 and $75,000. If your MAGI is higher than $75,000, you lose your eligibility to deduct your traditional IRA contribution totally.
What if you're a married joint filer? In 2020, you can deduct 100% of your traditional IRA contribution so long as your joint MAGI is $104,000 or less. The amount you can deduct phases out as your MAGI rises above $104,000 but stays at or below $124,000. You're ineligible for any deduction with MAGI above $124,000.
Those restrictions don't apply to Roth IRA contributions because they aren't deductible anyway.
Deadlines On 401(k) Contribution Limits
So when do you need to make your contribution by to take advantage of 401(k) contribution limits? Contributions for 401(k) accounts are generally due by the last day of the calendar year. Dec. 31 falls on a Thursday in 2020, so that's your deadline to make a contribution for 2020.
Keep in mind, though, you may not have full control to hit your 401(k) contribution limits as your contribution is taken out of your paycheck and you might not get paid in the week of Dec. 31. Also, employers may have more time to make a matching 401(k) contribution.
2020 Vs. 2021 Maximum 401(k) Contribution Limits
| Year | Basic Contribution Limit | Catch-Up Contribution (50 Or Older) |
|---|---|---|
| 2021 | $19,500 | $6,500 |
| 2020 | $19,500 | $6,500 |
| 2019 | $19,000 | $6,000 |
| 2018 | $18,500 | $6,000 |
| 2017 | $18,000 | $6,000 |
| 2016 | $18,000 | $6,000 |
| 2015 | $17,500 | $6,000 |
| 2014 | $17,500 | $5,500 |
| 2013 | $17,000 | $5,500 |
| 2012 | $16,500 | $5,500 |
Source: IRS.gov
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