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Maximum Retirement Plan Contributions

maximum contributions to a retirement account

Do you and/or your employer make contributions to a retirement plan, such as an IRA, 401k, 403b, SIMPLE, or SEP plan? What exactly do we mean when we refer to retirement plan contributions? Retirement plan contributions consist of the money paid into the account by employees, employers, and the self-employed. When you prepare and e-file your 2020 Tax Return on eFile.com, you do not have to worry about how your contributions affect your taxes. Once you answer a few simple questions, the eFile tax app will select the right retirement tax forms and schedules for you based on your answers.

Employee Contributions to Retirement Plans

There are four types of contributions that employees can make to retirement plans:

1) Elective Deferral Contributions

Also called salary reduction contributions, these are the most common types of contributions to retirement plans. You elect to have money deducted from your salary each pay period and contributed to your retirement account. Pre-tax dollars are contributed, which means that the money does not have any tax withheld from it before it is put in the retirement account. In most cases, a percentage of pay is contributed, but in some plans you can contribute a set dollar amount. Money that is contributed in this way is not reported as taxable income. For each year, there is a limit on the amount of deferrals.

2) Designated Roth Contributions

A designated Roth contribution is similar to an elective deferral, except the amount deferred is taxable as normal income. You choose to contribute a set percentage or amount of your salary per pay period, but you use taxable income. You do not exclude Roth contributions from your income on your tax return. The main benefit of a Roth account is that qualified distributions are non-taxable.

3) After-Tax Contributions

Not all retirement plans allow after-tax contributions. These are generally non-Roth contributions that you choose to make in addition to your regular elective deferrals of salary. If your plan allows after-tax contributions, any contributions that you make must be included in your taxable income. After-tax contributions may not be deducted, either.

4) Catch-up Contributions

Many, but not all, retirement plans allow catch-up contributions. If you are at least age 50 by the end of the year, you may be able to make additional, nontaxable, elective deferrals beyond the basic limit on contributions. If your plan allows it and you qualify, you can make these contributions up to the catch-up contribution limit even if you have made regular deferrals up to the regular limit.

Catch-up contributions are a good option for those who perhaps did not contribute a lot to their plans in the past, for those who waited until later in life to start saving for retirement, and for those who just want to ensure a comfortable retirement.

Employer Contributions

Employers can make two different kinds of contributions to retirement plans:

1) Matching Contributions

In most retirement plans, your employer can make contributions, or elective deferrals, to your account on your behalf. In some plans, employer contributions are mandatory; in other plans, they are discretionary (optional).

Elective deferrals by employers are called matching contributions because the employer matches a certain amount per dollar contributed by the employee. For example, your employer might contribute 50% of your contributions, which means an additional $0.50 for every dollar you contribute. The matching amounts vary according to plan and employer. Matching employer contributions are not taxable income (though the amount may be shown on your W-2).

2) Discretionary Contributions

Discretionary, or non-elective, employer contributions are allowed by some retirement plans. These are contributions made in addition to matching contributions at the employer's discretion. Such a contribution must be made equally to every employee covered by the plan; it cannot be made only to certain individuals. Discretionary contributions by employers are generally nontaxable income for you.

Contribution Limits

The government imposes limits on how much money employers and employees (and the self-employed) can contribute to retirement plans. The tables below summarize the applicable limits from 2015-2021 for most employer-sponsored retirement plans (not including pensions - see the pension plan limits). "Overall contributions" include all deferrals, employer contributions, and catch-up contributions. There are different limits for different defined contribution plans, so we recommend consulting your plan administrator for the exact figures.

IRAs

The IRA contribution limits are below; IRAs include catch-up contributions, similar to 401, 403, and 457 plans. A catch-up contribution is a payment only taxpayers ages 50 and older can make. 

Tax Year
Annual
Catch-Up
2021
$6,000 ($7,000 age 50 or over)
$1,000
2020
$6,000 ($7,000 age 50 or over)
$1,000
2019
$6,000 ($7,000 age 50 or over)
$1,000
2018
$5,500 ($6,500 age 50 or over)
$1,000
2017
$5,500 ($6,500 age 50 or over)
$1,000
2016
$5,500 ($6,500 age 50 or over)
$1,000
2015
$5,500 ($6,500 age 50 or over)
$1,000

401, 403, and 457 Plans

For the following plans, the table is organized by tax year, compensation, deferral/contribution limits, the catch-up limit, and the overall contribution limit. Compensation is the maximum limit for calculating contributions; the deferral/contributions limits are the total amount an employee can defer or contribute to a retirement plan. The overall amount is the total possible amount when considering the employee's contributions and total employer contributions (typically, around 50% off the employees contributions). The overall column excludes the additional, potential catch-up amount.

For example, a 60 year old employee contributes and/or defers the maximum amount during 2021 of $19,500, plus the additional catch-up amount of $6,500, adding to a total of $26,000. Their employer can choose to help them reach the maximum 2021 limit of $58,000, but most will stay around 50%. For this, the employer would contribute an additional $13,000, leading to a total of $49,000 which is under the limit, so the employee would not have to worry about going over the limit.

Tax Year
Compensation
Deferral/
Contribution
Catch-Up
Overall
2021
$290,000
$19,500*
$6,500**
$58,000
2020
$285,000
$19,500*
$6,500**
$57,000
2019
$280,000
$19,000*
$6,000**
$56,000
2018
$275,000
$18,500*
$6,000**
$55,000
2017
$270,000
$18,000*
$6,000**
$54,000
2016
$260,000
$18,000*
$6,000**
$53,000
2015
$260,000
$18,000*
$6,000**
$53,000

SIMPLE Plans

SIMPLE IRA plans follow similar fashion to traditional or Roth IRA limits. They also allow a catch-up contribution and are organized by tax year below.

Tax Year
Annual
Catch-Up
2021
$13,500 ($16,500 age 50 or over)*
$3,000
2020
$13,500 ($16,500 age 50 or over)*
$3,000
2019
$13,000 ($16,000 age 50 or over)*
$3,000
2018
$12,500 ($15,500 age 50 or over)*
$3,000
2017
$12,500 ($15,500 age 50 or over)*
$3,000
2016
$12,500*
$3,000
2015
$12,500*
$3,000

SEP Plans

SEP IRA plans have a single limit for a taxpayer, regardless of age or filing status. These plans are for the self-employed and allow business owners to make their own contributions to their retirement. 

Year
Overall
2021
$58,000***
2020
$57,000***
2019
$56,000***
2018
$55,000***
2017
$54,000***
2016
$53,000***
2015
$53,000***

*Or 100% of your salary, whichever is less. For example, if you had a 401(k) plan in 2020, you could contribute 100% of your salary to it if you earned under $19,000 for the year. (For 403 plans, a different figure is used instead of your salary, a number based on the current value of your benefits.)

** For 403 plans, this figure is different and depends on your years in service.

***Or 25% of salary/compensation, whichever is less.

If Contributions are Over the Limit: If deferrals were made that are over the contribution limit, they are called excess deferrals. Excess deferrals should be reported to your employer or plan administrator. You may request that the amount of your excess deferrals be paid out to you. The plan will have until April 15 of the following year, at the latest, to pay you the total amount of your excess deferrals.

After this, one of two things will happen:

  1. You withdraw the excess deferral amount on or before April 15 of the following year. In this case, the amount is not included in your gross income for the year and is not taxable income.
  2. You withdraw the excess deferral amount AFTER April 15 of the following year. Then, the amount must be included in your taxable income for the year in which it was deferred or contributed. The income may then effectively be double-taxed: once when it is contributed and again when it is withdrawn later. Also, when you do withdraw the money, it may be considered an early withdrawal and come with a penalty. But if you leave the money in the plan indefinitely, the plan may no longer be considered qualified for tax benefits.

Pension Plan Limitations: Pension plans, or annuities, are a type of retirement plan, but they are not the same thing as a 401(k), an IRA, or other, more common retirement plans covered above. See the contribution limits for pension plans.

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