Each year, the IRS adjusts the contribution limits for qualified retirement plans to account for cost of living increases. On October 26, 2020, the IRS published contribution limits for 2021 in Notice 2020-79.
Cost of Living Increases
While several limits remained unchanged for the upcoming year, there are a few notable limit increases.
The UNCHANGED limits are as follows:
The INCREASED limits for 2021 are:
|Minimum Compensation for SEPs||$650|
|$415 Limit – Defined Contribution||$58,000|
|$415 Limit – Defined Benefit||$230,000|
|Social Security Wage Base||$142,800|
In addition to the contribution limits, the IRS also updated some limits that will be used for 2021 testing.
There are no increases for the HCE Determination compensation ($130,000), Key Employee Officer ($185,000), or Key Employee 1% owner ($150,000) for 2021.
IRA & Roth IRA Range Limit Increases
Although the contribution limits for IRAs did not change and remains at $6,000 for 2021, the income ranges did increase. This increase will allow you to earn more money while still taking advantage of the tax deferred Roth IRA and / or the tax deferred traditional IRA.
Traditional IRA Limit Increase:*
|Individual, head of household||Max Income: $66,000||Phase out: $76,000|
|Married, filing jointly||Max income: $105,000||Phase out: $125,000|
Roth IRA Limit Increase:*
|Individual, head of household||Max Income: $125,000||Phase out: $140,000|
|Married, filing jointly||Max income:$198,000||Phase out: $208,000|
*These limits only apply if you and your spouse are covered by a workplace retirement plan. For those not covered by a workplace retirement plan, your contributions are fully deductible regardless of income.
Although the IRS made few changes to the contribution limits for 2021, you can still take advantage of retirement plan savings by contributing to your qualified retirement plan for 2021.
For questions about the 2021 contribution limits, contact us at firstname.lastname@example.org or 1-800-858-6989.