Each year, the IRS adjusts the retirement contribution limits. Keeping up with these changes is essential for your saving progress, especially if you qualify for catch-up contributions or if you are flirting with the imposed limits.
Below are some essential retirement saving facts for 2021. This information will help you maximize your contributions as you take steps towards a comfortable retirement.
401(k) Contribution Limits For 2021
If you have a 401(k) plan, you can contribute up to $19,500 into the account. Retirement savers aged 50 or older are allowed an additional catch-up contribution of $6,500. These limits are only applicable to the number of contributions deferred from your paychecks, including contributions to Roth 401(k) accounts.
There are separate limits for the combined contributions, which includes non-elective employer deposits and employer matches. These are primarily for businesses and self-employed individuals with their own 401(k)s. For 2021, the total contribution limits for 401(k) accounts can’t exceed $58,000 and $64,000 for savers aged 50 and older, including those who would be 50 years old before the end of the year.
Furthermore, your total contributions can be higher than your salary. That means if you earn $50,000 for 2021, your 401(k) contributions for the year should not exceed $50,000.
HSA Limits For 2021
A health saving account (HSA) offers three tax benefits. Contributions are tax-free, earnings are tax-deferred, and withdrawals for medical expenses are also tax-free. You can also get an employer match with an HSA account.
To be eligible to contribute to an HSA, an individual must be enrolled in a high-deductible health plan (HDHP). The IRS often defines the minimum insurance deductibles for a plan to be considered HDHP. The minimum deductibles for 2021 are $1,400 for individual coverage and $2,800 for family coverage.
For a traditional IRA, you can make your contributions with any income; however, your salary can affect your contributions’ tax-deductibility. This is usually the case when you or your spouse contribute to a workplace 401(k).
While you will still be able to make contributions up to the limit, your income will determine your contributions’ tax deductions.
You’ll have to decide where to invest your retirement dollar. Ensure that you save enough to capture your employer’s matching contributions. After that, consider investing in HSAs if you qualify. An HSA can be the secret weapon to maximize your retirement savings, as you can make taxable withdrawals for nonmedical purposes after hitting age 65, so it can function as a backup for your 401(k).
If you don’t have a workplace plan, then an IRA is your best option. It’s also a smart move to save to taxable brokerage accounts since IRA contributions are limited.