If you have a retirement plan, you might have heard about the new 401(k) investment limits for 2021.
It’s true: More change is coming for 401(k) investment limits in the new year and you need to be informed. Every year, the Internal Revenue Service reviews 401(k) investment limits, individual retirement accounts (IRA) and other retirement savings options and decides to increase or decrease the maximum contribution limits.
This year, the max employee contribution for 401(k) investment plans will be $19,500. But, if you are over 50, you can invest an additional $6,500 “catch-up” contribution as well.
Your employer can contribute up to $58,000 a year – with a “catch-up” option capped at $64,500 for those over 50.
These caps are for all employee contributions to your 401(k) accounts, if you have more than one, meaning your total contributions to all of your retirement accounts can’t exceed $19,500 – unless you are over 50 then you have the additional contribution option.
There are slightly different rules for people considered highly paid. If you earn a high salary, you might be considered a highly compensated employee so your contributions might be restricted. This rule is to keep those with more wealth from unfairly benefitting from the 401(k) tax benefits.
So, what’s different from 2020 to 2021? Really, not much. The maximum employee contribution remains unchanged at $19,500, as does the over-50 catch-up contribution of $6,500. But the defined contribution maximum limit is increased from $57,000 to $58,000; the defined contribution maximum limit for those 50 and up is increased from $63,500 to $64,500.
It’s not a huge change, but you should definitely be aware of it as a conscientious investor!
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