Contributing to a 401(k) or IRA, traditional or Roth, can help to reduce your tax burden and allow you to save more money for those retirement years. Contribution amounts for 401(k)s, IRA, and other retirement accounts for workers 50 and older are higher than younger workers. The extra contribution limits allow you to save a greater portion of your income as you near retirement. Contribution limits can change from year to year, and it?s important to know these limits so you can take advantage of them.
2021 retirement account contribution limits:
- The 2021 401(k), 403(b), and 457 plan contribution limit remains at $19,500, and workers 50 and over can contribute an additional $6,500.
- The 2021 IRA contribution rate is $6,000, and workers 50 and over an contribute an additional $1,000.
- The SEP IRA or solo 401(k) contribution limit is $58,000 for 2021. Solo 401(k) can also contribute an addition $6,000 for those workers 50 and over.
2021 contribution limits:
- The contribution limit for SIMPLE retirement accounts is $13,500 for 2021.
- The limit on investing IRA or 401(k) funds in a Qualified Longevity Annuity Contract (QLAC) is $135,000 for 2021.
Roth IRA phase-outs:
- A Roth IRA can help you lower your tax burden in retirement by providing tax-free distributions after paying tax on contributions.
- In 2021, individuals making at least $140,000 and couples making at least $208,000 cannot contribute to a Roth IRA.
- However, anyone may be able to convert part of all of their traditional IRA into a Roth IRA by paying tax on the amount converted.
As 2021 begins, it?s important to think about your plan for the new year. If your finances looked a bit different this year, the question is what you will do about in 2021? How much will you contribute to or distribute from your retirement account? How will you eventually use your retirement account to fund your retirement, and how will you minimize your tax burden? Now is the time to plan for 2021 and the many years ahead of you.