The Internal Revenue Service (IRS) offers retirement savers something known as a catch-up contribution. Whether you have saved diligently over your career or got a late start planning for retirement, you can take advantage of these contributions to add more to your tax-favored retirement plan.
The IRS imposes limits on how much you can contribute to most tax-favored retirement accounts each year. There are limits to catch-up contributions as well.
- To qualify for catch-up contributions, you must be at least 50 before the end of the year.
- Catch-up contributions can be made in a traditional IRA, Roth IRA, SIMPLE IRA, SARSEP, 401(k), SIMPLE 401(k), 403(b), or 457(b) retirement plan.
- For some types of retirement accounts, the amount of the catch-up contribution will depend on a person's income level, and high-income individuals may be unable to contribute any amount.
Catch-Up Contribution Limits for Traditional and Roth IRAs
If you have a traditional IRA you can contribute up to $6,000 to it in 2021 (this is unchanged from 2020). You can contribute up to $6,000 to a Roth IRA if you earn $125,000 or less per year in 2021 ($198,000 if married filing jointly). This is up from $124,000 and $196,000 in 2020. The $6,000 limit is across all IRA accounts you own, whether they're traditional or Roth IRAs. If you are age 50 or older, you can add catch-up contributions of $1,000 more, or up to $7,000 in total.
If your taxable compensation was less than $7,000, you may contribute no more than the amount of your taxable compensation.
If you earn more than $125,000 (or $198,000), the amount of money you can contribute to your Roth IRA—including your catch-up contribution—may be affected by your modified adjusted gross income (MAGI) and your federal income tax filing status.
|Roth IRA Catch-Up Contributions|
|If you're 50 or older and your filing status is:||and your MAGI is:||you can contribute:|
|Married filing jointly or qualifying widow(er)||less than $198,000||up to $7,000|
|Married filing jointly or qualifying widow(er)||more than $198,000 but less than $208,000||a reduced amount|
|Married filing jointly or qualifying widow(er)||$208,000 or more||zero|
|Married filing separately and you lived with your spouse at any time during the tax year||less than $10,000||a reduced amount|
|Married filing separately and you lived with your spouse at any time during the tax year||$10,000 or more||zero|
|Single, head of household, or married filing separately and you did not live with your spouse at any time during the tax year||less than $125,000||up to $7,000|
|Single, head of household, or married filing separately and you did not live with your spouse at any time during the tax year||$125,000 or more but less than $140,000||a reduced amount|
|Single, head of household, or married filing separately and you did not live with your spouse at any time during the tax year||$140,000 or more||zero|
To determine the reduced amount you may contribute if you are in one of those affected income ranges:
- Subtract $198,000 from your MAGI if you are married and filing a joint return or are a qualifying widow(er).
- Subtract nothing from your MAGI if you are married and filing a separate return and you lived with your spouse at any time during the year.
- Subtract $125,000 from your MAGI if you are a different type of filer.
- Divide the resulting number by $15,000 if you are single, head of household, or married and filing a separate return and did not live with your spouse at any time during the tax year.
- Divide the resulting number by $10,000 if you are married and filing a joint return, a qualifying widow(er), or married and filing a separate return and you lived with your spouse at any time during the tax year.
- Multiply that number by the maximum contribution limit ($6,000 for 2021 or $7,000 if you qualify for catch-up contributions).
Subtract that number from the maximum contribution limit. This is the amount you may contribute, including catch-up contributions.
For example, if you over 50 years old, married and filing a joint return, and have a modified adjusted gross income of $200,000, your Roth IRA contribution limit for 2021 would be:
- ($200,000 - $198,000)/$10,000 = 0.2
- 0.2 x $7,000 = $1,400
- $7,000 - $1,400 = $5,600
Catch-Up Contributions for SIMPLE IRAs, SEP IRAs, and SARSEPs
If you have a SIMPLE IRA, you can contribute as much as $13,500 in 2021 (unchanged from 2020). If you participate in another employer-offered retirement plan in 2021, the total amount you can contribute to both plans is $19,500.
If you are age 50 or older and your employer allows catch-up contributions to your SIMPLE IRA, your limit increases by $3,000.
A SIMPLE (Savings Incentive Match Plan for Employees) IRA is a retirement savings account that an employer and its individual employees participate in. It is often used by small companies instead of a 401(k) retirement plan. With a SIMPLE IRA, the employer generally matches up to 3% of the employee's compensation.
Catch-up contributions are not permitted in SEP IRAs, which receive contributions only from employers.
A Simplified Employee Pension (SEP) Plan allows employers to contribute to a traditional IRA set up for their employees. Any size business may set up a SEP IRA, including someone who is self-employed.
The maximum amount an employer can contribute to a SEP IRA in 2021 is the lesser of 25% of the employee's compensation or $58,000 (up from $57,000 in 2020).
A SARSEP, or Salary Reduction Simplified Employee Pension plan, is a type of SEP that was set up prior to 1997. Contributions to a SARSEP plan in 2021 and 2020 must be the lesser of $19,500 or 25% of the employee's compensation.
However, SARSEP plans are eligible for catch-up contributions for employees 50 years of age or older. In 2021 and 2020, SARSEP plans can include catch-up contributions of up to $6,500.
Catch-Up Contribution Amounts for 401(k) Plans
If you have a 401(k) plan, you can generally contribute up to $19,500 from your salary to your plan in 2021 (this is unchanged from 2020). If you are age 50 or older in 2021 or 2020 and your employer allows catch-up contributions, your limit increases by $6,500.
A SIMPLE 401(k) plan (Savings Incentive Match Plans for Employees) is for employees of a small business with 100 or fewer workers.
You can invest up to $13,500 in a SIMPLE 401(k) plan in 2021 and 2020. If you are eligible for catch-up contributions, your limit increases by $3,000.
Catch-Up Contributions for 403(b) and 457(b) Plans
The 2021 and 2020 contribution limits for a 403(b) or 457(b) plan are generally the same as for 401(k)s: $19,500 in regular contributions and $6,500 more in catch-up contributions if you are eligible.
If you are enrolled in a 403(b) plan, have worked for your employer for at least 15 years, and your employer's plan permits it, you can contribute an additional catch-up amount to your plan. The amount is the lesser of the following:
- $15,000 minus the number of additional catch-up contributions made in prior years because of this rule
- $5,000 times the number of years you've worked for this employer, minus the total catch-up contributions made in prior years
A 403(b) retirement plan is for employees of:
- Tax-exempt organizations
- Public school systems
- Cooperative hospital service organizations
- Public school systems organized by Indian tribal governments
- Certain ministers
The maximum amount that can be contributed to a 403(b) by both you and your employer in 2021 is the lesser of $58,000 or your total compensation, including benefits, for your most recent year of service.
A 457(b) plan may allow an additional catch-up contribution in the three years before your retirement. In 2021 and 2020, the catch-up amount is the lesser of:
- $39,000 (twice the annual limit of $19,500)
- The basic annual limit of $19,500 plus the amount of the basic annual limit not used in prior years, if you are not making 50-or-older catch-up contributions
A 457(b) retirement plan is for state and local government workers.
The maximum amount that can be contributed to a 457(b) by both you and your employer in 2021 is the lesser of $19,500 or your total compensation, including benefits.
Changes in Limits to Retirement Plan Contributions
Contribution limits increase over time, typically every year or every other year. They usually adjust to inflation in $500 increments. Catch-up contributions change at a slower rate and are often set for five years at a time.
If you have any questions about your retirement accounts, talk to your employer, or seek the advice of an accountant or tax attorney.
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