Retirement

401k Contribution Limits 2021

The 401(k) Contribution Limits are subject to change every year. The Internal Revenue Service sets the contribution limits. For 2021, the 401(k) contribution limits are going to be increased by the IRS.

There is a contribution limit because the IRS wants to prevent highly paid workers benefiting from 401(k) more than an average worker from the tax advantages. Since the contributions to traditional or other qualified 401(k) plans grant tax benefits, this to keep everything equal for everyone.

As for the contribution limit in 2021, it’s $20,000. With the catch-up contribution limit, this can be as much as $26,500. The additional $6,500 is given to workers who are aged 50 and over. The catch-up contribution limit was increased by the IRS from $6,000 to $6,500 last year. An increase in this bonus contribution isn’t expected for a couple of years.

Employer Contributions

If you’re working at a company where your contributions are matched, your total contributions can be more than $26,500. The contributions made by your employer doesn’t count toward your contribution limit. Instead, it counts toward the total contribution limit.

The total contribution limit is $58,000. This is increased from 2020 at $57,000 to $58,000 in 2021. The total contribution limit is made up of the $26,500 employee contributions and the rest is the employer contributions. With that said, employers can contribute more to an employee’s 401(k) than they can contribute.

All and all, the 401(k) contribution limit for a worker who’s under the age of 50 is $20,000. Those who are aged 50 and over can contribute an extra $6,500, totaling at $26,500. With the employer contribution, the total contribution limit is $58,000.

Here are the 401(k) contribution limits year by year prior to 2021.

YearEmployee Contribution LimitTotal Contribution Limit
2020$19,500$57,000
2019$19,000$56,000
2018$18,500$55,000
2017$18,000$54,000
2016$18,000$53,000
2015$18,000$53,000
2014$17,500$52,000
2013$17,500$51,000
2012$17,000$50,000
2011$16,500$49,000
401k Contribution Limits from 2011 to 2020
YearEmployee Contribution LimitTotal Contribution Limit
2010$16,500$49,000
2009$16,500$49,000
2008$15,500$46,000
2007$15,500$45,000
2006$15,000$44,000
2005$14,000$42,000
2004$13,000$41,000
2003$12,000$40,000
2002$11,000$40,000
2001$10,500$35,000
401k Contribution Limits from 2001 to 2010
YearEmployee Contribution LimitTotal Contribution Limit
2000$10,500$30,000
1999$10,000$30,000
1998$10,000$30,000
1997$9,500$30,000
1996$9,500$30,000
1995$9,240$30,000
1994$9,240$30,000
1993$8,994$30,000
1992$8,728$30,000
1991$8,475$30,000
401k Contribution Limits from 1991 to 2000

Traditional vs. Roth 401(k)

When opening a 401(k) retirement account, you will have two options. You can either have a traditional or Roth 401(k). Either one of these types of 401(k) retirement accounts has its own advantages and disadvantages. Which you should choose depends on your future as well as your income.

The contributions made to a traditional 401(k) are made with pretax dollars. This means your contributions are taken out of your paycheck without you paying any taxes. These contributions are also qualified for a deduction. If you itemize, you can deduct the contributions made to a traditional or other qualified 401(k) plan.

On the other hand, Roth 401(k) contributions are made with after-tax dollars. The advantage of Roth 401(k) is you won’t pay taxes when you withdraw money. Therefore, Roth 401(k) contributions are taxable.

Which one is better for me?

The traditional 401(k) retirement plans are best for those who are likely to earn the same or less in retirement. Since the contributions made to a traditional 401(k) is deductible, it will benefit you in many ways. If your income is likely to be more in retirement though, Roth 401(k) is definitely going to be better. Given you are most likely to move to a higher tax bracket in retirement if you earn more, you will be paying less tax.

The bottom line is if you’re expecting to earn more in retirement, go with Roth 401(k). If not, your best bet is a traditional 401(k).

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