As you plan for your 2020 taxes, it may be helpful to know the increased retirement plan contribution amounts that will be allowed for the 2021 tax year.
While the salary reduction limits for contributions to section 401(k) plans do not increase from the current $19,500 ($26,000 for individuals who attain age 50 by the end of the tax year), the compensation that can be considered for retirement plan contributions increases to $290,000 for 2021 (from $285,000 for 2020) and thus the maximum contribution for individuals to defined contribution plans, including Simplified Employee Pensions (SEPs), increases to $58,000 for 2021 (from $57,000 for 2020). The contribution limit for SIMPLE plans ($13,500) and the section 457 salary reduction contribution limit ($19,500) have not changed. The limit on annual benefits in a defined benefit plan remains unchanged at $230,000.
While the IRA contribution limit remains unchanged at $6,000 ($7,000 for individuals who attain age 50 by the end of the tax year), the adjusted gross income limitation for maximum deductible contributions to traditional IRAs increased by $1,000 to $105,000 for married couples filing jointly where the individual is covered by an employer’s retirement plan and $66,000 for single taxpayers covered by an employer’s retirement plan. If the IRA contributor is not covered by an employer’s retirement plan, but the spouse of that individual is so covered, the adjusted gross income limitation for maximum deductible contributions increased by $2,000 to $198,000. The adjusted gross income limitation for maximum Roth IRA contributions increased by $1,000 to $125,000 for single individuals and heads of household and by $2,000 to $198,000 for married couples filing jointly. For 2020 and later years, individuals of any age with earned income can make an IRA contribution.
Tax preferred retirement plans continue to be one of the most effective ways to save for retirement. Such savings should be maximized.
