Don’t Miss Out on Massive Savings with these Tax Secrets - Contribution Limits for 2021

January 23rd, 2021 by D.C. Poc

Each year, the IRS specifies contribution limits for retirement accounts. These limits, based on inflation data from the year prior, determine how much a person (and their company in some instances) can contribute to a given plan. Below, we’ll quickly go over the limits for the common retirement accounts.

IRA & Roth IRA: $6,000 with a catch-up provision of $1,000 for Age 50+

This is an important one, as you’ll learn here at The Wealthy Idiots. The Roth IRA is an awesome retirement vehicle and you should certainly aim to contribute up to the maximum allowable. Remember, the combined limit for both the IRA & Roth IRA is $6,000 ($7,000 with catch-up), as it is not individually based. This means if you contribute to both, the contributions cannot exceed $6,000.

401(k), 403(b), and Profit-Sharing Plans: $19,500, $6,500 catch-up, and $58,000 defined contribution limit

The 401(k) is a widely-available plan that more and more Americans are participating in. For 2021, employees will be able to contribute $19,500, plus an additional $6,500 if they’re over 50. Additionally, the employer contribution limit is $58,000. This means if you are over 50 your contributions plus your employers could total $64,500 for 2021. Don't forget, you can’t exceed these limits for multiple plans. Your combined contributions to all plans in this category can’t exceed the IRS limit.

Don’t get discouraged if you are not hitting these numbers. Instead, set goals with specific triggers and stick to your plan. Example: set a goal that you will increase your $401k contribution by one half of every pay raise you receive until you reach the IRS limit. This will help you hold yourself accountable. Also - don’t forget the match. You should always ensure you get the maximum employer contribution allowable.

457(b)/Deferred Compensation Plan: $19,500

This plan is commonly found among university employees, state and local governments, local boards of education, and nonprofit entities. Lesser known fact: you can contribute the IRS limit to a 401(k) or 403(b) plan AND contribute the IRS limit to a 457(b). That’s right, you can fully utilize both of these! The 457(b) also allows a special catch-up provision depending on your plan administrator. This provision allows participants to contribute twice the annual limit ($39k) for the three years prior to their normal retirement date determined by the plan. You’ll need to check with your plan administrator for more info on this.

For more information on these limits as well as income restrictions and special caveats, we encourage you to checkout the IRS website on contribution limits.

Health Savings Account (HSA): Self-only $3,600, Family $7,200; $1,000 catch-up for 55 and older

Good news for those of you that employ a HSA with a High Deductible Health Plan (HDHP) - the IRS increased the limit by $50 for self-only and $100 for family plans. Keep in mind, these limits are total, so the combination of individual, employer, and pass-through contributions cannot exceed these limits. If you are 55+ in this case, you get an extra $1k of contribution space. Additionally, there are restrictions for couples that have different plan types. Be sure to conduct your due diligence prior to switching to a HSA-eligible plan if you haven’t already.

Why is this important?

I know, you’re probably wondering why an extra $50 in your HSA really matters. Well, here at The Wealthy Idiots, we believe readers should be familiar with every penny of tax-advantaged space. If you understand taxes, and know the contribution limits set forth by the IRS, you are well-equipped to control the amount of taxes you pay and better plan for the future. Going forward, you can expect to see a similar article every November/December. Happy savings!

D.C. Poc
Co-founder of The Wealthy Idiots, Index Fund Investor, Real Estate Investor

D.C. joined the Marine Corps right out of high school. When he left active duty, after 5 years of service, he quickly earned a bachelors degree and an MBA. He got his first private sector job at a modest salary and quickly worked his way up through promotions. Once he started making decent money ($38k at the time) he quickly realized he needed to learn how to save to secure his future. After nearly ten years of research, he wants to share his knowledge and financial best practices so more people can become Wealthy Idiots!

Disclaimer: The Wealthy Idiots is not a financial advisor and nothing on this site is intended to be used as financial advice. This site operates as a generator of ideas, which sparks financial curiosity and leads to growth in financial knowledge and understanding. If you need specific advice, it is recommended that you speak with an estate attorney, fee-only financial advisor, tax consultant, etc., depending on the area of expertise your question requires.
Recent Articles
How to protect your loved ones with term life insurance
The HUGE benefits of the Health Savings Account (HSA)
Pay attention; don’t let fees eat your investment returns
End of year checkup; how I keep tabs on my finances
Social Security; what it is and how you should include it in your retirement planning
How to pick the right brokerage firm for you
Keep more of your hard-earned coin; understand tax write-offs and credits
Retirement Money 101: Where to put it and in what order
The unforeseen downfalls of the FIRE movement
Compound interest for idiots; don’t short-change yourself
Why a 6.2% COLA is not good news for the average person
Don’t fear the stock market, dive in head first!
Take your retirement savings to the moon with these simple tips
Continuing the pursuit of wealth; rental property #2
Do you know your net worth? You should and here is how to calculate it!
Making Cents of Retirement Accounts
Get richer, quicker: 10 tips for the Wealthy Idiot
MLM will kill your pursuit of wealth
Property taxes: how to beat a rigged system
The investors mindset; what does this Wealthy Idiot think about?
DEBT: The Good, The Bad, and the Ugly
Don’t miss the tax law change that can lessen the blow of childcare
BUSTED: Retirement Myths
The path to early (Age 57) retirement; long-term rental properties
Babies are expensive - be prepared!
First step to being wealthy: fire your financial advisor
Show me the stimmy; What you need to know about your 2021 stimulus check
Side Hustle: Real Estate Agent (Part 2)
Don’t be a normal idiot, be a wealthy one; maintain a healthy emergency fund
Side Hustle: Real Estate Agent (Part 1)
Highway to Retirement. Do not miss this overpowered tax cheat code! Roth IRA
Stay the course; don’t let soundbites and talking heads curb your personal finance strategy
Your bank might not “be there for you” during these difficult times - always know your banking fees!
Save thousands with a low mortgage rate
Stimulus Checks 101: Don’t get left behind!
You're paying way too much in taxes; Spend more time working for yourself
The Case for a High Savings Rate; Building Wealth to Secure Your Future
8 Financial Truths Every Wealth Builder Needs to Know
Copyright © 2021 Wealthy Idiots. All rights reserved. Privacy