Because there are tax advantages to saving for retirement in qualified retirement plans and IRAs, tax laws limit how much you may put into these accounts each tax year. There are also limits on how much of your compensation may be considered for certain purposes and on how much you can earn and still be eligible for the tax benefits of each type of IRA. Each year, these limits may be increased for cost-of-living adjustments (COLAs). For 2021, many of the applicable limits will rise. It’s important to understand how these limits affect your ability to maximize your tax-advantaged retirement savings for 2021.
Traditional and Roth IRAs
For IRAs, COLAs affect the annual contribution limit and the income limits that determine whether taxpayers are eligible to take a deduction for their traditional IRA contributions or to make a Roth IRA contribution.
Contribution limit
You are eligible to contribute to a Traditional IRA as long as you have earned income for the year. (You may not contribute more than you earned.) You are eligible to contribute to a Roth IRA if you have earned income under a certain amount for the year. You may contribute to both types of IRAs in the same year, as long as you don’t exceed the annual limit when contributions to both types of IRAs are combined.
| Traditional & Roth IRA |
2021 |
2020 |
| Maximum amount you may contribute to your IRAs for the year |
$6,000 |
$6,000 |
| Maximum catch-up contribution if you’re age 50 or older |
$1,000 |
$1,000 |
Income limits for deducting traditional IRA contributions
If you contribute to a traditional IRA, you can take a tax deduction for the contribution unless you or your spouse participates in a retirement plan at work. In that case, to be eligible to deduct the full contribution, your adjusted gross income must fall under the lower limit noted in the chart below, based on your tax-filing status.
If your income falls within the range for your tax-filing status, you may take a partial deduction for your contribution. If your income exceeds the top amount in your range, you may not take a deduction.
If you participate in a retirement plan at work:
| Tax-Filing Status |
2021 Income Range |
2020 Income Range |
| Single or Head of Household |
$66,000-$76,000 |
$65,000-$75,000 |
| Married, Filing Jointly |
$105,000-$125,000 |
$104,000-$124,000 |
| Married, Filing Separately |
$0-$10,000 |
$0-$10,000 |
If you don't participate in a retirement plan, but your spouse does:
| Tax-Filing Status |
2021 Income Range |
2020 Income Range |
| Married, Filing Jointly |
$198,000–$208,000 |
$196,000–$206,000 |
| Married, Filing Separately |
$0-$10,000 |
$0-$10,000 |
Income limits for eligibility to contribute to a Roth IRA
If your adjusted gross income is below the lower limit noted in the chart below, you may contribute up to the full contribution limit to a Roth IRA. If your income falls within the range noted below, based on your tax-filing status, you may make a partial contribution to a Roth IRA for the year. If your income exceeds the maximum limit for your tax-filing status, you may not contribute to a Roth IRA for the year.
| Tax-Filing Status |
2021 Income Range |
2020 Income Range |
| Single or Head of Household |
$125,000–$140,000 |
$124,000–$139,000 |
| Married, Filing Jointly |
$198,000–$208,000 |
$196,000–$206,000 |
| Married, Filing Separately |
$0-$10,000 |
$0-$10,000 |
Employer-based Retirement Plans
The COLAs also affect contribution and other limits for employer-based IRA plans and owner-only 401(k) plans.
SEP IRA Plan
| |
2021 |
2020 |
| Minimum compensation you must earn to be eligible for an employer contribution |
$650 |
$600 |
| Maximum employer SEP contribution = 25% of compensation up to … |
$58,000 |
$57,000 |
| Maximum compensation considered for calculating employer contributions |
$290,000 |
$285,000 |
SIMPLE IRA Plan
| |
2021 |
2020 |
| Maximum amount you may put into a SIMPLE IRA as a salary deferral |
$13,500 |
$13,500 |
| Maximum catch-up contribution if you’re age 50 or older |
$3,000 |
$3,000 |
| Maximum compensation considered for calculating an employer nonelective contribution |
$290,000 |
$285,000 |
Owner-only 401(k) Plan
| |
2021 |
2020 |
| Maximum amount you may put into a 401(k) plan as a salary deferral |
$19,500 |
$19,500 |
| Maximum catch-up contribution if you’re age 50 or older |
$6,500 |
$6,500 |
| Maximum employee and employer contributions combined |
$58,000 |
$57,000 |
| Maximum compensation considered for calculating employer contributions |
$290,000 |
$285,000 |