Every year, the IRS adjusts the maximum amount taxpayers can contribute to tax-advantaged retirement savings plans to reflect increases in the cost of living.
Inflation was so low in 2020 that the maximum you can contribute to retirement savings accounts is unchanged for 2021. Here’s the breakdown:
- Employer-sponsored retirement savings plans. The most you can stash in 401(k)s, Roth 401(k)s and other employer plans in 2021 is $19,500. The catch-up contribution for people 50 and older is $6,500.
- Traditional or Roth IRAs. The maximum you can contribute to an IRA in 2021 is $6,000. The catch-up contribution for savers 50 and older stays at $1,000.
There is a glimmer of good news: The IRS increased the amount of money that workers covered by an employer-sponsored plan can earn in 2021 and still deduct contributions to an IRA. (There are no income cutoffs for individuals who aren’t covered by an employer-sponsored plan; they can deduct the maximum allowed.)
Single taxpayers who are covered by a 401(k) or other workplace retirement plan can deduct their full contribution to an IRA if their income is $66,000 or less; the deduction gradually phases out until income reaches $76,000. That’s up from $65,000 to $75,000 in 2020. For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.
If one spouse is covered by an employer-provided plan and the other is not, the second spouse can deduct IRA contributions if the couple’s joint income is between $198,000 and $208,000, up from between $196,000 and $206,000 in 2020.
The IRS also adjusted the amount of money you can earn and still contribute to a Roth IRA.
Roth contributions aren’t deductible, but as long as you’ve owned your Roth for at least five years and are 59½ or older, withdrawals are tax-free.
Singles with modified adjusted gross income (MAGI) of less than $125,000 (up from $124,000 in 2020) can make the maximum contribution to a Roth. The amount phases out at $140,000 (up from $139,000). Married couples who file jointly can make the maximum contribution if their MAGI is less than $198,000, phasing out at $208,000 (up from $196,000 to $206,000).
There’s no income limit on converting a traditional IRA to a Roth.
