Max 401(k) Contributions – Contribution Limits for 2020 and 2021


By The Human Interest Team

There are several types of retirement account plans available to workers. 401(k)s are structured towards individuals employed with for-profit companies, while 403(b)s are geared towards those working in the nonprofit sector, including religious groups, schools, and hospitals. Finally, 457 plans are available for governmental and certain nongovernmental U.S. employees. All of these plans, known as tax-qualified plans, are discussed in Section 401(a) of the U.S. tax code. 

2020, 2021 Contribution Limits

Understanding 401(k) contribution limits can be confusing and even sometimes overwhelming. They are, however, essential to know. Below we break down important contribution limits (i.e., max 401(k) contribution) for 2020 and 2021.

Max 401(k) Contribution: 2020 and 2021

Contribution limits for retirement accounts like 401(k)s, 457s, and 403(b)s have all been set: the max 401(k) contribution for 2020 and 2021 is $19,500. This is up from the $19,000 limit each of them had in 2019. The annual max is $26,000 if you’re age 50 or older.

Catch-Up Contributions: 2020 and 2021

Employees who have a 401(k), 403(b), or 457 account and are 50 years or older can contribute additional funds annually to their plans. Known as catch-up contributions, these also have annual contribution limits, which generally receive an annual cost-of-living increase. This provides individuals who are quickly approaching retirement age without adequate savings an opportunity to catch up. The max catch-up contribution for 2020 and 2021 is $6,500, up $500 from 2019’s limit of $6,000. This is an 8.3% increase, significantly more than the recent inflation rate. 

Other Retirement Account Limits for 2020

In addition to cost-of-living increases to 457, 403(b), and 401(k) plans, the Internal Revenue Service (IRS) also has 2020 rule updates for other max contributions to retirement accounts including: 

  • SIMPLE plan contribution limits have increased from $13,000 in 2019 to $13,500 for 2020. 

  • Traditional and Roth IRA contribution limits remain the same at $6,000, with traditional and Roth IRA catch-up contribution limits staying at $1,000.

  • Taxpayers are able to deduct traditional IRA contributions if they meet certain conditions. If the taxpayer or their spouse had an employer-sponsored retirement plan during the year, that deduction may be decreased and phased out until it’s completely eliminated, depending on their income and filing status. If neither the taxpayer or the spouse has an employer-sponsored retirement account, phase-out deductions don’t apply. 

  • Refer to IRS guidelines for the income eligibility limits that individuals must meet in order to contribute to Roth IRAs and phase-in limit ranges. In most cases, the income limits where these ranges start to apply have also increased. 

Benefits of Making Contributions to Your 401(k) Plan

401(k) account contributions provide a double tax advantage for taxpayers. Individuals are able to direct pre-tax funds from their paycheck into their 401(k), reducing the amount of their income subject to income taxes the following year. In addition, any earnings from 401(k) account contributions are also tax-exempt. 

Individuals will need to pay income taxes on funds taken out of 401(k) accounts during retirement. However, many find their income is lower during retirement than it was while working, placing them in a lower tax bracket. 

Annual Limit as a Contribution Goal

Your HR professional, or plan admin, your plan contribution limits for each year with you. Not everyone is able to make the max 401(k) contribution, but the annual contribution limit is a great goal to keep in mind. It also encourages individuals who are able to defer additional funds into retirement savings to take advantage of doing so.  

Most individuals contribute slightly more than 8.5% of their income, almost a full percentage point increase from 10 years ago. Increasing your 401(k) contribution each year, even if only by 1%, which often seems like a small amount at the time, can make a significant difference to your account balance in 10 to 20 years. 

Individuals who haven’t been deferring enough from each paycheck to reach the annual contribution limit and who can afford to do so should consider increasing their contribution levels before the end of the calendar year so they can fully meet their 401(k) contribution limits. 

What Are the Roth 401(k) Contribution Limits?

The 2020 and 2021 contribution limit for Roth 401(k)s is $19,500, up from the 2019 contribution limit of $19,000. Individuals who are 50 years or older can make an additional catch-up contribution of up to $6,500 for 2020. These additional contributions are meant to help individuals nearing retirement age increase the total value of their retirement account before they need to start accessing it for regular income. This means an individual could potentially contribute a total amount of $26,000. 

Employers are also able to contribute to an employee’s Roth 401(k) with matching contributions up to a certain dollar amount or percentage (although these contributions are pre-tax). An employer could even decide to make elective contributions that aren’t dependent on employee contributions. 

The limit of employer and employee contributions for 2020 is 100% of the lessor of an employee’s compensation or $57,000. Workers who are older than 50 years are still eligible for their $6,500 catch-up contribution and can have a maximum of $63,500 in employer and employee contributions. For 2021, the max 401(k) contribution, including both an employer’s contribution and an employee’s contribution is $58,000, or $64,500 if you’re age 50 or older.

If You Have Multiple Roth Accounts

Individuals who want to also have a Roth IRA may wonder if they meet the set income limits for eligibility. For 2020, income phase-out levels for Roth IRA contributions start at $124,000 for individuals filing separately and completely end at $139,000. This is up from 2019’s phase-out level range of $122,000 to $137,000.  

The 2020 phase-out range for married individuals who are filing jointly along with qualifying widows and widowers starts at $196,000 and ultimately ends at $206,000. This also is up from 2019’s range of $193,000 to $203,000.  

The 2020 combined contribution limit for individuals with both a Roth IRA and a Roth 401(k) is $25,500 ($6,000 Roth IRA + $19,500 Roth 401(k)). For individuals over the age of 50, the combined contribution limit for 2020 is $33,000 ($6,000 Roth IRA  + $1,000 catch-up  + $19,500 Roth 401(k) + $6,500 catch-up). 

How Many People Max Out Their 401(k)? 

Not enough. Just 12% of retirement savers contribute the max to their 401(k).

Make sure you understand the 401(k) contribution limits and are taking full advantage of other retirement saving opportunities available to you in 2020 by talking with one of Human Interest’s retirement savings specialists today.

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment advising, and integration with leading payroll providers.

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