New 401(k) contribution limits for 2021

Retirement savers won’t be eligible to put more money in a 401(k) plan next year. The 401(k) contribution limits will remain the same in 2021, but some of the income limits for 401(k) plans will increase.

Here’s how the 401(k) plan limits will change in 2021:

— The 401(k) contribution limit is unchanged at $19,500.

— The 401(k) catch-up contribution limit is $6,500 for those age 50 and older.

— The limit for employer and employee contributions will be $58,000.

— The 401(k) compensation limit will climb to $290,000.

— The income limits for the saver’s credit will increase to $33,000 for individuals and $66,000 for couples.

Pay attention to these new 401(k) rules when making retirement savings decisions for 2021.

The 2021 401(k) Contribution Limit

The contribution limit for 401(k)s, 403(b)s, most 457 plans and the federal government’s Thrift Savings Plan will remain $19,500 in 2021.

“The main thing for employees to know at the beginning of the year is what their maximum allowable contribution is,” says Eric Maldonado, a certified financial planner for Aquila Wealth Advisors in San Luis Obispo, California. “Then update your percentage or dollar-based employee deferrals to automatically fund your 401(k) each pay period.”

You can contribute to multiple traditional 401(k) and after-tax Roth 401(k) accounts in the same year, but your total 401(k) contributions to all accounts can’t exceed the annual 401(k) limit. Rob DeLucas, a certified financial planner for Afton Advisors in Brentwood, Tennessee, says, “A Roth 401(k) strategy actually allows you to get even more money into the plan because ultimately all of the money saved will belong to the participant without future deferred taxation.”

Traditional 401(k) distributions are taxed when the money is withdrawn. If you deposit more than the contribution limit, take care to withdraw the excess funds by April 15 of the year after you make the contribution to avoid additional taxes and penalties.

[See: How Much Should You Contribute to a 401(k)?]

The 2021 401(k) Catch-Up Contribution Limit

Workers age 50 and older are eligible to make catch-up contributions to 401(k) plans. The catch-up contribution limit will be $6,500 in 2021. Older workers can defer paying income tax on as much as $26,000 in a 401(k) plan in 2021.

“If you have preset your savings limits at a fixed amount based on plan maximums, make sure you pay attention to your own age,” DeLucas says. “Once you cross age 50, you can contribute a full $26,000 into your employer’s 401(k) plan. This can certainly help offset savings deficiencies in a worker’s overall retirement planning strategy.” An older worker would need to save $2,167 per month, or $1,083 per bimonthly paycheck, to max out a 401(k) plan.

The 2021 401(k) Limit for Employer Contributions

Employers can make matching and nonmatching contributions to a 401(k) plan on behalf of employees, even if the worker has already maxed out the account. The overall contribution limit to 401(k) plans, including employer and employee deposits, is 100% of the participant’s compensation or $58,000, whichever is less. For workers age 50 and older, the overall contribution limit is $64,500, which includes catch-up contributions.

[READ:10 Strategies to Maximize Your 401(k) Balance.]

The 2021 401(k) Compensation Limit

Highly paid employees may be restricted in their ability to make 401(k) contributions. A 401(k) plan can elect to stop salary deferrals once a participant’s compensation reaches $290,000 in 2021 and can only use up to this amount when providing a 401(k) match.

“The catch-up contribution is a great benefit for highly compensated employees because unlike the first $19,500 of contributions that may be limited by their employer, the $6,500 catch-up contribution is available to any employee over 50, including highly compensated employees,” says Danielle Seurkamp, a certified financial planner for Well Spent Wealth Planning in Cincinnati. “Considering these workers tend to be in higher tax brackets, the catch-up contribution could save them up to 40 cents on each dollar they contribute.”

[Read: How to Set Up Your First 401(k).]

How to Qualify for the Saver’s Credit Using Your 401(k) Plan

Low- and moderate-income retirement savers can earn between $500 and $1,000 more and still qualify for the saver’s credit, which could be worth as much as $1,000 for individuals and $2,000 for couples. The income limit for the saver’s credit will increase to $33,000 for individuals, $49,500 for heads of household and $66,000 for married couples in 2021.

This tax credit is worth between 10% and 50% of 401(k) contributions up to $2,000 for individuals and $4,000 for couples, with the biggest credits going to the savers with the lowest incomes. The saver’s credit can be claimed in addition to the tax deduction for saving in a traditional 401(k) plan.

More from U.S. News

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The Best Places to Retire in 2021

A Guide to 401(k) Vesting

New 401(k) Contribution Limits for 2021 originally appeared on

Update 11/16/20: This story was published at an earlier date and has been updated with new information.

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