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What is the maximum 401(k) contribution?

The IRS recently announced the 2021 401(k) and IRA contribution limits.

Articles by Nick Holeman, CFP®
By Nick Holeman, CFP® Head of Financial Planning, Betterment Published Nov. 16, 2020
Published Nov. 16, 2020
6 min read

What is the maximum 401(k) contribution? It’s a question heard at benefit meetings and at virtual water coolers across the United States. And for good reason. That’s because knowing the 401(k) contribution limit is the first step to maximizing retirement savings

This just in: IRS announces new contribution limits

Every year, the IRS updates the rules governing 401(k) and IRA contributions, and they recently announced the guidelines for 2021. This is the perfect opportunity to share the new rules with your employees and encourage them to review their retirement contributions. (And remind them that they have until December 31 to maximize their 2020 contributions!)

So what are the new IRA and 401(k) contribution limits for 2021 and how do they compare to those from 2020?

  • For 2021, the contribution limit for employer-sponsored 401(k) plans remains at $19,500 for individuals under age 50 and $26,000 for individuals over age 50.
  • Contribution limits for IRAs remain at $6,000 in 2021 for individuals under age 50 and $7,000 for individuals over age 50.
  • Although there are no income limits to contribute to Roth 401(k)s, the income phase-out ranges for taxpayers making contributions to a Roth IRA have increased to $125,000 and $140,000 for individuals filing single, and $198,000 to $208,000 for married couples filing jointly.

Now, let’s get into the details of the new 2021 limits and rules—and how they may impact your employees’ retirement goals.

What you need to know about retirement plans (and their contribution rules)

As you may know, there are two primary retirement plans: employer-sponsored retirement plans and IRAs. Here’s how they differ:

  • Employer-sponsored plans—like 401(k), 403(b), and 457 plans—are only available if the employer offers one. If they’re eligible, individuals can contribute to both an employer-sponsored plan and an IRA.
  • IRAs are tax-deferred or tax-advantaged retirement accounts that individuals (who qualify) can open up on their own—regardless of their employment situation.

Because the IRS offers tax advantages to people who participate in these plans, there are naturally a few strings attached. Specifically, individuals can only contribute a certain amount of money in a given year—and that amount decreases if they earn above a certain threshold.

Many limits are unchanged for 2021

When your employees ask “what is the 401(k) limit for 2021?” you’ll be able to let them know that most people can contribute up to $19,500 in 2021. While unchanged from 2020, that’s still a nice chunk of change and significantly more than individuals can save in IRAs. We’ve outlined the major changes in the limits for 2020 below.

When you look at the following contribution limits, you’ll notice that some of them take into consideration taxable income, which impacts how much highly compensated employees and low-income earners can save. Estimating taxable income can be complicated, and since Betterment is not a tax advisor, we suggest talking with a qualified tax professional.

Let’s take a closer look at the 2021 contribution limits.

  • Employer-sponsored Plan Contribution Limits

In 2021, the limit on annual employee contributions to Roth or Traditional 401(k) plans remains unchanged at $19,500. The additional catch-up contribution limit also remains unchanged at $6,500 for a total contribution limit of $26,000 for employees 50 years old and older.

  • IRA Contribution Limits

In 2021, the limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals 50 years old and over also remains unchanged at $1,000. The total contribution limit is $7,000 for employees 50 years old and older.

Contribution Limits Catch-up Contribution Limit 
(for individuals age 50 and above)
Account Type 2020 2021 2020 2021
Traditional IRA

Roth IRA

$6,000 $6,000 $1,000 $1,000
457 Plans
$19,000 $19,500 $6,000 $6,500

Want to help your employees make the most of their retirement savings vehicles as they head into the home stretch? Let them know that if they’re age 50 or older at the end of the calendar year, they can make a $6,000 catch-up contribution to their employer-sponsored plan and an additional $1,000 contribution to their IRA in 2019. For more information please see additional details from the IRS on catch-up contributions.

  1. Income Limits for Deductible Traditional IRA Contributions

One of the best benefits of a Traditional IRA is that you can deduct contributions on your tax return. However, Traditional IRA contributions are only deductible if an individual’s modified adjusted gross income (MAGI) falls below a certain threshold. Above that threshold, there’s a “phase-out” range in which an individual is eligible for a partial deduction, and after that range, contributions are not deductible. The phase-out ranges are also dependent on whether individuals (or their spouses) are covered by an employer-sponsored plan.

Traditional IRA Deductibility Limits for Individuals with an Employer-sponsored Plan

2020 2021
Filing Status Income (MAGI) Income (MAGI) Deduction Limit
Single individuals ≤ $65,000 ≤ $66,000 Full deduction up to the 

contribution limit

$65,000 – $75,000 $66,000 – $76,000 Partial deduction 
≥ $75,000 ≥ $76,000 No deduction
Married, filing jointly ≤ $104,000 ≤ $105,000 Full deduction up to the 

contribution limit

$104,000 – $124,000 $105,000 – $125,000 Partial deduction
≥ $124,000 ≥ $125,000 No deduction

Traditional IRA Deductibility Limits for Individuals without an Employer-sponsored Plan

2020 2021
Filing Status Income (MAGI) Income (MAGI) Deduction Limit
Single individuals All incomes All incomes Full deduction up

to the contribution


Married, filing jointly + neither individual or spouse has an employer-sponsored plan All incomes All incomes Full deduction up

to the contribution


Married, filing jointly + spouse has an employer-sponsored plan ≤ $196,000 ≤ $198,000 Full deduction up 

to the contribution


$196,000 – $206,000 $198,000 – $208,000 Partial deduction
≥ $206,000 ≥ $208,000 No deduction

To read more about the IRA deduction limits, refer to details available from the IRS.

  1. Income Limits for Roth IRA Contributions

Because a Roth IRA is funded with after-tax dollars, qualifying withdrawals (typically in retirement) can be made on a tax-free basis. However, to make the maximum $6,000 Roth IRA contribution, an individual’s income must fall below a certain threshold. 

In 2021, eligibility to contribute to a Roth IRA starts to phase out at $125,000 for single filers and $198,000 for married couples (filing jointly). Those are slightly higher starts of the phase out thresholds than in 2020, which began at $124,000 for single individuals and $196,000 for married couples.

Income Ranges for Partial Roth IRA Eligibility

Individuals whose incomes fall within the following ranges are limited to making partial Roth IRA contributions. Those whose incomes fall below these ranges can contribute the full amount. Individuals with incomes above the range cannot contribute to a Roth IRA that year.

Income Tax Filing Status 2020 MAGI 2021 MAGI
Single $124,000 – $139,000 $125,000 – $140,000
Married Filing Jointly $196,000 – $206,000 $198,000 – $208,000

For more information and guidance regarding Roth IRAs, review the expanded IRS rules.

  1. Income Limits for the Retirement Savings Contributions Credit (Saver’s Credit)

To help low-income people save for retirement, the IRS offers the “Saver’s Credit.” Individuals may be eligible for the credit if they’re saving for retirement and their income falls below specific ranges. This credit offsets the individual’s income-tax liability; however, it phases out as the individual’s adjusted gross income (AGI) increases. 

In 2021, AGI limit for the Retirement Savings Contribution Credit increases to:

  • $32,500 for married individuals filing separately
  • $48,750 for heads of household
  • $65,000 for married couples filing jointly

The maximum credit is available to those who have an AGI below or at the bottom of the ranges shown in the table below.

Saver’s Credit Income Limits

Tax Filing Status 2020 AGI 2021 AGI
Single $19,500 – $32,500 $19,750 – $33,000
Married Filing Jointly $39,000 – $66,000 $39,500– $66,000

For more information, refer to the IRS page regarding the Saver’s Credit.

Are your employees wondering how much to save? Betterment can help.

Whenever contribution rules change, we update Betterment’s advice. When employees log in to Betterment, they can get personalized advice on how to save for retirement. In fact, we prioritize which accounts are smart to invest in first, and then what to max out next. And our advice is always consistent with current contribution rules, however, they may change. 

In addition, Betterment can take into account outside holdings, such as prior employer-sponsored plans. That way, employees get a more holistic look at their total retirement savings. 

To help your employees maximize their retirement plans, encourage them to leverage Betterment’s personalized guidance technology, and if you aren’t already partnering with us, learn more about the Betterment for Business 401(k) now.

Offer your employees a better 401(k)
This article is part of the
Betterment 401(k) Learning Center

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