What are the 401(k) contribution limit changes in 2021?

The IRS has announced its 2021 contribution and benefits updates. There are not many changes in 2021, but the highlights include a change in income qualification limits for contributions to retirement plans.

The 2021 IRS retirement contribution and benefit updates are as follows:

• The exclusion for elective deferrals will remain at $19,500 for 401(k) plans. You may elect to defer up to 100% of your Compensation on a pre-tax basis. You may also elect to make Roth contributions to the Plan on an after-tax basis. If you are age 50 or over, you may defer an additional amount up to $6,500 (in 2021).

• On top of elective deferral contributions, your company may match contributions up to a limit. For full details, please refer to the Summary Plan Description.

• The annual compensation limit increased to $290,000.

• An IRA contributor who is not covered by a workplace retirement plan, who is married to someone that is, will have the deduction phased out if their combined income is between $193,000 and $203,000.

• The AGI phase-out range for married couples filing jointly making Roth IRA contributions is now $198,000 to $208,000, and $125,000 to $140,000 for singles and heads of households.

Even if you have maxed out your 401(k) plan contributions for the year, you can still contribute to an IRA or Roth IRA at Schwab Institutional. Your IRA contribution is non-deductible but grows tax-free and the contribution when withdrawn is tax-free. Contributing to a Roth IRA is subject income qualification. Contributions are invested in stocks, and ETFs that are professionally managed under a suitable portfolio strategy for you.

Email Patrick Byrne at Aspetuckfin@optonline.net if you would like to discuss benefits of establishing an IRA account at Schwab Institutional.

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