The Internal Revenue Service (IRS) has released guidance on cost-of-living increases to the income ranges for determining individual retirement account (IRA) and Roth IRA contribution eligibility, and to claim the Saver’s Credit for 2021 — but employee 401(k), 403(b) and IRA contribution limits remain unchanged.
This means the elective deferral (contribution) limit for employees who participate in 401(k) and 403(b) plans will stay at $19,500 for 2021, the catch-up contribution limit for employees aged 50 and over who participate in these plans remains at $6,500 and the limit on annual contributions to an IRA stays at $6,000.
What did increase for 2021 was the income limit for the Saver’s Credit (also known as the Retirement Savings Contribution Credit). For low- and moderate-income workers, the limit is $66,000 for married couples filing jointly, up from $65,000; $49,500 for heads of household, up from $48,750; and $33,000 for singles and married individuals filing separately, up from $32,500.
Also, taxpayers who meet certain conditions can deduct contributions to a traditional IRA. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. View the IRS’s cost of living adjustment (COLA) chart for more details.
Employers may want to consider communicating these details to employees. Studies have shown that employees often have misperceptions about how much they can contribute.
With more and more workers postponing retirement due primarily to financial uncertainty, now is a good time for your employees to check if they are taking full advantage of all their retirement savings opportunities and plan for 2021.
CalChamber members can read more on Private Retirement Savings Plans, including the state-run CalSavers Retirement Savings Program for private-sector workers whose employers don’t offer a retirement plan. Not a member? See what CalChamber can do for you.