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. Unfortunately, inflation was so low in 2020 that the maximum you can contribute to tax-advantaged retirement savings accounts is unchanged for 2021. Here’s how that breaks down:SEE MORE The Best Vanguard Funds for 401(k) Retirement Savers
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 remains 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.SEE MORE The 100 Most Popular Mutual Funds for 401(k) Retirement Savings
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 $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