When it comes to your employer-sponsored 401(k) plan, saving for retirement becomes a lot easier once you enroll. Now, while contributing to your 401(k) plan passively with each paycheck is a great way to prepare early on for retirement, however, there are limits on exactly how much you can contribute each year to your 401(k). To learn how much you can contribute in 2021, keep reading below!
In 2020, the IRS updated the 401(k) contribution limits for 2020 and 2021 to be a maximum of $19,500. For 2020, the limit increased from 2019. Previously, the 401(k)-contribution limit was $19,000. For 2020, that rose up to $19,500. For other retirement accounts, such as 403(b) plans and Thrift Savings Plan, these limits also apply (AARP). Depending on your age, the limits you have for your retirement account(s) may vary.
For those up to age 50, the contribution limit is the same as above: $19,500. For those 50 and older, the 401(k) maximum contribution limit is $26,000. If your employer offers a matching program, there are limits for total 401(k) contributions. The difference in those limits from 2020 to 2021 is as follows:
- 2020: $57,000
- 2021: $58,000
This means that the total contributions to your 401(k) accounts cannot exceed your annual income.
One of the most important lessons from 2020 that was learned was to save money as much as you can. No matter your income, saving money is always a good idea. Seeing that we are in the midst of the coronavirus pandemic, it cannot hurt to continue saving and contributing as much as you can to your retirement portfolio this year.
To go over the best practices for your portfolio, it is in your best interest to meet with a financial professional. As mentioned above, the contribution limit depends on your age and the requirements and limits may vary depending on the circumstances. It is important to know the best strategies as you continue to plan. As this information can be intimidating, a financial professional will be able to guide you in the right direction.
Ready to start your retirement planning journey? Wolfe Financial is here to help. Let’s kick off 2021 with a strong plan and make sure your financial goals come to reality. To schedule an appointment with us, email us at info@wolfefinancial.com or give us a call at (301) 652-9677. One of our advisors would be delighted to lead you in the right directions and make sure your strategy aligns with your financial goals for the future.
Sources:
https://www.forbes.com/advisor/retirement/401k-contribution-limits/