How to maximize your 401(k) with 2021 contribution changes

Contents
  1. 401(k) Contribution Limits 2020 and 2021
  2. Here’s the maximum you can put into a 401(k) for 2020 and 2021:
  3. What is the maximum employer 401(k) contribution for 2020?
  4. 401(k) total contributions 2020 and 2021
  5. Can I contribute 100% of my salary to my 401(k)?
  6. Are there separate limits for Roth 401(k)s?
  7. Are there income limits for 401(k)s?
  8. Can I have a 401(k) and an IRA?
  9. What happens if I exceed my 401(k) limit by mistake?
  10. Maximizing your 401(k) and IRA retirement contributions
  11. Could you increase your 401(k) contribution?
  12. Good news about retirement contribution limits and income ranges
  13. Consider making catch-up contributions to your 401(k) or IRA (if you’re old enough)
  14. 401(k) Contribution Limits 2021
  15. 401(k) Retirement Savings in 2021
  16. 3 Limits for 401(k) Contributions
  17. 2021 401(k) Contribution Limits
  18. 401(k) Income Limits for 2021
  19. If You Go Over the 401(k) Max Contribution Limits
  20. Bottom Line
  21. 401(k) Contribution Limit Increases for 2021
  22. How much am I allowed to save in my 401(k)?
  23. What if I want to save more than the 401(k) contribution limits?
  24. 2021 401(k) Contribution Limits
  25. How Employees Can Max 401(k) Contribution Limits
  26. Employees Use Retirement Calculators to Project 401(k) Contribution Growth
  27. Employees Value Help Reaching 401(k) Contribution Limits 
  28. Employer Match Encourages Employees to Save
  29. Maximize Personal 401(k) Contributions
  30. 6 Ways That May Increase Retirement Savings in 2021
  31. #1 Contribute as Much to Retirement Savings as Possible 
  32. #2 Fund an IRA in Addition to Your 401(k)
  33. #3 Invest Stimulus Checks and Tax Refunds 
  34. #4 Rebalance Investments Quarterly 
  35. #5 Avoid Target Date Funds 
  36. #6 Seek Professional Help as Soon as Possible 
  37. Have questions or concerns about your 401(k) performance? Book a complimentary 15-minute 401(k) strategy session with one of our advisors. 
  38. 401(k) Contribution Limits for 2021
  39. What Is the 401(k) Contribution Limit for 2021?
  40. Contribution Limits for Employer Matching and Highly Compensated Employees (HCEs)
  41. Should You Max Out Your 401(k) Contributions?
  42. Tax and Investment Benefits of a 401(k)
  43. Bottom Line
  44. Tips for Managing Your Retirement Savings

401(k) Contribution Limits 2020 and 2021

How to maximize your 401(k) with 2021 contribution changes

401(k) plans are an excellent way to save for retirement, but because 401(k)s are tax-advantaged, the IRS sets a limit on how much you — and your employer — can contribute to your 401(k) per year.

Here’s the maximum you can put into a 401(k) for 2020 and 2021:

  • If you’re under age 50, your maximum 401(k) contribution is $19,500.
  • If you’re 50 or older, your maximum 401(k) contribution is $26,000.

What is the maximum employer 401(k) contribution for 2020?

There's a higher limit if your employer is contributing to your 401(k). Employers who match employees' 401(k) contributions often do so between 3% and 6% of the employee's salary. So if you make $50,000 and contribute 5% of your salary ($2,500) and your employer matches that 5%, you'll add $5,000 to your balance each year.

For 2020, your total 401(k) contributions — from yourself and your employer — cannot exceed $57,000 or 100% of your compensation, whichever is less. For 2021, that limit rises to $58,000.

401(k) total contributions 2020 and 2021

2020 401(k) contribution limit2021 401(k) contribution limit
$63,500 (including catch-up contributions)

Can I contribute 100% of my salary to my 401(k)?

It depends on what your salary is. The maximum individuals can contribute is $19,500 for those under 50 or $26,000 for those older than 50.

Are there separate limits for Roth 401(k)s?

No. Roth 401(k)s have the same contribution limit as regular 401(k)s. For 2020 and 2021, that limit is $19,500. You can contribute to both a traditional 401(k) and a Roth 401(k) account in the same year, as long as your total contributions don’t exceed that amount. If you’re choosing between the two, learn about the differences between a Roth and traditional 401(k).

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Are there income limits for 401(k)s?

While there's not a universal income limit on 401(k) contributions, in some cases the IRS does impose contribution limits on “highly compensated employees” when a company encounters disproportionate contribution levels among its workers. The IRS has a test that helps employers who sponsor 401(k) plans assess whether employees are participating in their plan at levels proportionate to their compensation.

If the test determines that people across compensation levels aren't participating in a manner the IRS deems proportionate, employee contribution levels for highly compensated employees can be lowered. In these cases, your employer may need to return some of your excess contributions.

The IRS defines a highly compensated employee in one of two ways:

  1. An individual who either owned more than 5% of the interest in a business at any time during the year or the preceding year, no matter how much they were paid.

  2. An individual who received over $130,000 from the business in the preceding year and, if the employer ranks employees by compensation, was in the top 20%.

Can I have a 401(k) and an IRA?

Yes. IRAs make a great supplement to retirement savings in addition to a 401(k) if you’re contributing enough to receive a full match from your employer, or you’re planning on maxing out your 401(k).

If you don’t receive a match on your 401(k) or it has narrow investment options or high fees, it may be a good idea to invest primarily in an IRA.

The annual contribution limit for an IRA in 2020 and 2021 is $6,000, or $7,000 if you’re 50 or older.

» Ready to try an IRA? Check out our list of the best IRA accounts

What happens if I exceed my 401(k) limit by mistake?

If you contribute too much to your 401(k) and notice your mistake before April 15, you can probably correct it with your employer. You’ll need to notify your plan administrator. They’ll return the excess money to you, and you’ll get a new W-2 and pay taxes on your new total taxable wages.

If you don’t catch the mistake before tax day, you may have to pay taxes twice on the amount you contributed over the limit. That’s because the excess contribution can’t be deducted from your taxes in the year it was made, and because the IRS will still count that money as taxable when it’s distributed too.

Источник: https://www.nerdwallet.com/article/investing/401k-contribution-limits

Maximizing your 401(k) and IRA retirement contributions

How to maximize your 401(k) with 2021 contribution changes

When you contribute to a 401(k), 403(b), or IRA, you’re already on a path to help secure your financial future. But could you save more? Making the most of your organization’s retirement plan now could help ensure your golden years are even more golden.

Read “5 steps to creating your retirement plan” to help you get started.

We get that question a lot. So we asked Stanley Poorman, advice and planning manager for Principal®, who said there’s no one-size-fits-all answer.

“A good rule of thumb is to save 10–15% of your income toward retirement, but that also depends on when you get started. That may be fine if you’re 25, but if you’re starting at 50, you may need to save more to retire comfortably,” Poorman says.

One way to get a quick snapshot of how much you may need to save is to use the Retirement Wellness Planner. By entering a few numbers, you’ll get a sense of whether you’re on track or not.

Another factor is whether you have a matching contribution from your employer, and if so, what percentage the company contributes. Poorman suggests deferring enough of your pay to get that match. (Hey, it’s free money.)

Could you increase your 401(k) contribution?

A 1% increase only makes a small difference in your paycheck—but may make a big difference down the road.

Cutting or reducing non-essentials could allow you to bump up the money you’re putting into your 401(k) or 403(b). the gym membership you haven’t used in 6 months, for example. Or buying a certified used car instead of a new one. How about those merit increases or a bonus?

A little could go a long way in the future. Consider this example1 for a $35,000 annual income:

Imagine if you could increase it to 10% of your pay?

If you’re wondering how to save more toward retirement, read 5 smart money tips from super savers.

 Tip: Don’t forget inflation’s impact on retirement savings. You may feel you’re saving enough to maintain your current lifestyle. Even though your income may increase over the years, so will your cost of living (typically). If you spend $50,000 a year to live in today’s dollars, for example, how much more will it take 30 years from now?

Good news about retirement contribution limits and income ranges

If you're already maxing out your retirement accounts, some news you should know: The Internal Revenue Service (IRS) made a cost of living adjustment that allows you to put away more money in retirement plans.

Anyone enrolled in their employer’s retirement plan and still working can generally make a maximum contribution of $19,500 per year, which remains unchanged from 2020.2

If you have an IRA, your annual max contribution is still $6,000. (Want to learn more? Read the basics of IRAs.)

Get the scoop: Read more about the 2021 contribution limits and income ranges.

Consider making catch-up contributions to your 401(k) or IRA (if you’re old enough)

How about this cool perk once you’ve hit the big 5-0:

You can contribute an additional $6,5003 to your 401(k) or 403(b) plan once you’ve reached the annual maximum, but only if you’re 50 or older and it’s an option in the plan. And since these contributions are typically pre-tax, they’ll lower your current taxable income even more. You can make catch-up contributions to an IRA, too (that limit is $1,000).

1 This example is for illustrative purposes only. It assumes $35,000 in annual income, 3.5% annual wage growth, 30 years to retirement, 7% annual rate of return and a 25% tax bracket. Estimated monthly retirement income calculations assume a 4.5% annual withdrawal in retirement.

The assumed rate of return is hypothetical and does not guarantee any future returns nor represent the return of any particular investment option. Reduced take-home pay is accurate for the initial year and would change participant’s annual pay.

Estimated savings amounts shown do not reflect the impact of taxes on pre-tax distributions. Individual taxpayer circumstances may vary.

2 Contributions are limited to the lesser of the annual plan or the IRS limit as indexed.

3 Some plans may not allow catch-up contributions to the plan.

This document is intended to be educational in nature and is not intended to be taken as a recommendation.

Investing involves risk, including possible loss of principal.

Asset allocation and diversification does not ensure a profit or protect against a loss. Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed-income investments are subject to interest rate risk; as interest rates rise their value will decline.

Investment and insurance products are:

  • Not insured by the Federal Deposit Insurance Corporation (FDIC) or any federal government agency, 
  • Not a deposit, obligation of, or guaranteed by any bank or banking affiliate 
  • May lose value, including possible loss of the principal amount invested.

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Источник: https://www.principal.com/individuals/build-your-knowledge/maximizing-your-401k-and-ira-retirement-contributions

401(k) Contribution Limits 2021

How to maximize your 401(k) with 2021 contribution changes

Knowing the maximum 401(k) contribution for 2021 can save you from paying taxes twice. Go beyond limits set by the IRS, and you pay income tax on the excess contributions now and again when you withdraw money from the retirement account. Learn how the contribution limits work and how much you can save in a 401(k) plan in 2021.

401(k) Retirement Savings in 2021

Your 401(k) plan contributions are pretax amounts deducted from your paycheck, effectively reducing current income taxes while growing retirement savings. Contributions to your 401(k) are also called deferrals because you pay the income later (defer) when you retire. The Internal Revenue Service limits how much you can put into a 401(k) retirement plan each year starting January 1.

These retirement savings accounts are available through employers. You choose a percentage of your income from each paycheck to deposit in the 401(k) plan. Keep the annual total deferral within the 401(k) max contribution limits for 2021, and you won’t pay income taxes on that amount during the year. You pay taxes on plan distributions later, at your lower retirement income tax rate.

3 Limits for 401(k) Contributions

The IRS calculates how much you can contribute to a 401(k) using a cost-of-living adjustment (COLA) and the Consumer Price Index for All Urban Consumers (CPI-U). The figures include the third quarter CPI-U. Three types of contribution limits apply, whether you are active in one 401(k) plan or multiple plans.

If you have two jobs or change jobs in 2021 and contribute to both employers’ plans, be sure your total contributions stay within the annual limits.

Employee contribution limit: This is the maximum you can contribute to your 401(k) in 2021. If you have more than one 401(k), your total elected deferrals to all plans must not exceed this limit. One caveat is that your employer’s plan can impose a lower limit. Be sure to read your plan documents or ask your company’s plan representative to confirm the maximum contribution.

Total contribution limit: Some employers match a percentage of the amount you deposit in a 401(k). An employer may also make nonelective contributions to a 401(k) even if you do not contribute to the plan. The total contribution is equal to the sum of:

  • Your total annual 401(k) contributions (elected deferral)
  • Employer match or nonelective contribution (including SIMPLE IRAs)
  • Any contributions you make to a Roth 401(k)
  • Forfeitures

Forfeitures are employer contributions that accumulate if you leave a 401(k) plan before working long enough to be fully vested (i.e., own all employer contributions).

Total contributions can’t exceed your annual income, even if the limit is set above the amount you earn. You can exclude catch-up contributions from the total contribution limit after you turn 50.

Catch-up limit: If you are age 50 or older by the end of the calendar year, you may contribute more to your 401(k) each year. You can boost your 401(k) by thousands of dollars when you add the catch-up limit to employee and employer total contribution limits.

2021 401(k) Contribution Limits

Now that you understand what 401(k) contribution limits are, let’s take a look at the numbers. The IRS announced 2021 contribution limits in November 2020.

  • The employee contribution limit for 2021 is $19,500. This number did not change from the previous year.
  • The benefit of an employer’s 401(k) matching plan becomes obvious when you consider the 2021 total contribution limit is $58,000.
  • The $6,500 catch-up contribution in 2021 did not change from the 2020 limit. You can increase the total contribution limit to $26,000 by taking advantage of the catch-up rule.

The same contribution limits apply to 403(b) plans, Thrift Savings Plans and most 457 plans.

401(k) Income Limits for 2021

You can earn $290,000 in 2021 and take part in employer and employee contributions. Most 401(k) plans allow you to continue making contributions after you earn that amount. However, the IRS stops your employer matches or other contributions.

Your 401(k) plan may also stop your elected deferrals once compensation reaches the annual limit, although this is not the norm.

Limit TypeDescriptionAmount
2021 401(k) Limits
Employee ContributionMaximum total annual contributions.$19,500
Total ContributionEmployee and employer contributions combined.$58,000
Catch-up DeferralsAdditional amount for those over age 50.$6,500
IncomeRules depend on the 401(k) plan.$290,000

If You Go Over the 401(k) Max Contribution Limits

A change in income or contributing to more than one plan can create an excess deferral. Going over the max 401(k) contribution limits happens when contributions total more than the amount allowed for 2021.

  • If you go over the maximum 401(k) limits, notify your plan administrator before April 15, 2022. Ask for a distribution from the plan of the excess deferral adjusted for earnings.
  • The distribution is included in your 2021 gross income for tax purposes. File an amended tax return if you file your taxes before requesting the distribution.
  • While the earnings are taxed, you won’t owe the additional 10% tax on early distributions. You will receive Form 1099-R from the plan for tax reporting.

If you leave the excess funds in the plan, the amount is excluded from your cost basis when you take 401(k) distributions after retirement. You get taxed on the excess deferral left in the 401(k) when you contribute and again when you take a distribution. Speak to a financial advisor if you don’t fully understand how to avoid creating an excess deferral.

Bottom Line

No one can live comfortably on Social Security benefits. If your employer offers a 401(k) plan, take advantage of the tax benefits combined with future retirement income. Start with a small contribution if you’re on a tight budget. Know the annual limits on elected deferrals, and plan early to maximize your 401(k) savings in 2021.

Источник: https://www.retirementliving.com/401k-contribution-limits

401(k) Contribution Limit Increases for 2021

How to maximize your 401(k) with 2021 contribution changes

If you offer a 401(k) plan at your small business, the contribution limits for employees who participate in 401(k), 403(b), and other select government savings plans is $19,500.

For 2021, the IRS and DOL made a few other changes that are helpful for you or your employees to know:

• The annual overall limit on contributions to a participant’s account has increased to $58,000 for 2021 (or capped at 100% of the participant’s salary if they are paid less than $58,000).

• For participants over the age of 50, catch-up contributions remain at $6,500, in addition to the $19,500 limit.

• The annual limit for IRA contributions remains at 2020's limit of $6,000.

• The qualifying income cap for the Saver’s Tax Credit for workers has increased to $66,000 for married couples filing jointly, $49,500 for heads of household, and $33,000 for single filers.

How much am I allowed to save in my 401(k)?

Each year, the Internal Revenue Services (IRS) releases updated contribution limits for retirement plans. Some years, contribution limits will increase, but not always. As of 2021, you are allowed to contribute up to $19,500 in your 401(k). Additionally, employees over 50 are allowed an extra $6,500 in catch-up contributions in order to save more for retirement.

What if I want to save more than the 401(k) contribution limits?

There are a few options if you want to save beyond the $19,500 limit. You can choose to set up your own Individual Retirement Account (IRA), which will allow you to save up to $6,000 per year (or $7,000 with catch-up contributions) and grow that money through investments just a 401(k).

There are also Roth IRAs, which require you to pay taxes prior to saving into your account, but make withdrawals tax-free later in retirement. Note that there are some income limits for the tax benefits of IRAs that means some higher-paid individuals won't get those tax perks.

Finally, if you aren't worried about paying taxes on your savings, you can also set up a brokerage account to invest and grow money for retirement.

2021 401(k) Contribution Limits

Description 2021 2020
Elective Deferral Limit*$19,500$19,500
Annual Contribution Limit$58,000$57,000
Annual Compensation Limit$290,000$285,000
HCE Threshold**$130,000$130,000

How Employees Can Max 401(k) Contribution Limits

When your employees contribute as much as possible to their 401(k) accounts, they are more ly to get on track for a dignified retirement.

And while not every employee will be able to meet the maximum contribution limit, as little as $25 more in savings per paycheck can add up over time.

Here are some ways your employees can get inspired to save more or even max out their 401(k) contribution limits:

Employees Use Retirement Calculators to Project 401(k) Contribution Growth

One easy step to get motivated to save even a little more for retirement is to use a retirement calculator. These tools allow employees to crunch a few basic numbers and learn how much their current or hypothetical savings will grow before retirement.

This makes it easier for employees to visualize their retirement income, and how much of an impact their choices today can have.

The definition of a max 401(k) contribution may be different for everyone, but a retirement calculator shows in dollars and cents how pushing the limit and saving more makes a difference over time. 

Employees Value Help Reaching 401(k) Contribution Limits 

We believe one-on-one support from a 401(k) adviser, whether on the phone or in person, helps employees stay committed to their 401(k) contribution. We find this is especially true when it comes to the challenge of saving long-term.

Our team of 401(k) specialists speaks one-on-one with employees to help them think through their savings rate, even to adjust it over time.

By helping those employees set new goals and adapt 401(k) investment strategies to each phase of life, employees stay on track for retirement even as “life happens” along the way. 

Employer Match Encourages Employees to Save

Another powerful tool to increase savings among your employees is adding an employer match to your 401(k).

By offering to match employees’ contributions up to a percentage of their salary, or even up to maximum 401(k) contribution limits, you can provide them with a real incentive to save as much as possible.

This is a win-win for all employees and can help them get set up for a dignified retirement.

Maximize Personal 401(k) Contributions

One of the best ways for a business owner or other highly compensated employee (HCE) to get on track themselves for retirement is to maximize personal contributions to a 401(k) account.

Not only will this greatly increase the amount of money you have invested and growing for retirement, it will also reduce your tax burden today.

Working with a professional one-on-one will help make the most of these opportunities.

*Catch-up provision of $6,500 per year available to all employees age 50 and older during the calendar year.

**A highly compensated employee (HCE) is an employee who earned more than $130,000 in the preceding year, as well as any 5% owner.

Источник: https://www.fisher401k.com/blog/2021-401k-contribution-limits

6 Ways That May Increase Retirement Savings in 2021

How to maximize your 401(k) with 2021 contribution changes
In Financial Health, Retirement Savings

Another year around the sun means another year closer to retirement. For 401(k) investors who are behind on retirement savings and for those looking to get ahead in 2021, here are 6 ways that may jumpstart retirement savings in 2021. 

#1 Contribute as Much to Retirement Savings as Possible 

The IRS has new retirement plan contribution limits for 2021, and while most limits remain the same as last year, some plans will see a limit increase.

Employee 401(k) contribution limits for 2021 will stay the same as 2020 — at $19,500. This applies to 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan. 

For those age 50 and older, the 401(k) catch-up contribution is $6,500. 

If you’re 50 or older and need to catch up on your 401(k) retirement savings, the amount you’re able to save remains unchanged at $26,000. 

If you turn 50 anytime during December of 2021, you’re still eligible to contribute the additional $6,500. 

Click here for the full list of retirement plan contribution limits for 2021.

#2 Fund an IRA in Addition to Your 401(k)

Whether you have a 401(k) or similar workplace retirement plan or not, consider opening an Individual Retirement Account (IRA) to diversify your investment portfolio while reducing your taxable income. 

If you’ve changed employers in the past and had a 401(k) with them, it’s ly you have some retirement savings accumulated. 

If the balance is over $5,000, you can take your 401(k) plan(s) from previous employers and roll them over into an IRA. This will make tracking retirement spending much easier. 

If your old plan balance is between $1,000 and $5,000 and the company is forcing you out, they must help you set up an IRA. 

However, if your balance is under $1,000, the company can issue you a check and force you their plan.

If you decide to fund an IRA or roll over an older 401(k) into an IRA, make sure you select a plan with the lowest fees. Or seek third-party advice to make the best rollover decision possible. 

Before you make your move, make sure to check out these 5 Costly 401(k) Rollover Pitfalls.

#3 Invest Stimulus Checks and Tax Refunds 

If you’re eligible for this latest round (or any future stimulus that might end up in your bank account) and/or get a tax refund this spring, set all or part of it aside for retirement. 

This is an easy way to boost retirement savings without cutting your budget or reducing the amount you can spend each month. 

Avoiding the temptation to spend all or part of it now may help increase retirement savings more than you think. 

#4 Rebalance Investments Quarterly 

If you’re a 401(k) investor and have been told a set-it-and-forget-it strategy is best when it comes to 401(k)s, we encourage you to rethink this advice. 

Saving for retirement is a long-term game. 

However, this buy-and-hold strategy often causes investors to potentially miss out on earning more and keeping more of their hard-earned retirement savings

The investments you initially chose to help you meet your retirement goals–whether that was 3 years ago or 5 months ago–may no longer be the best alternatives for you now.

When you take into consideration changes in market conditions, trade policy, and consumer sentiment, investments that were right for you in the past may not be now. 

Morningstar conducted a study that monitored the top 100 best-performing mutual funds between January 1, 1998, and December 31, 2013. 

This study revealed that, in any given year of top best-performing 100 mutual funds in any of those years, in the next year, about half of the time, 8 100 remained in the top 100 the very next year.¹ 

This is why we recommend you rebalance your 401(k) quarterly, or four times a year. 

Rebalancing is the process of realigning the weightings of the assets (your investments) in the portfolio

This can involve periodically buying and/or selling assets in the portfolio in order to maintain the initial desired level of asset allocation. 

Maintaining an even distribution of assets–such as 50% stocks and 50% bonds–is also a key objective. This is why rebalancing your portfolio may need to take place from time to time throughout each year.  
Discover why account balancing and allocation may affect 401(k) performance.

#5 Avoid Target Date Funds 

Average investors are told the set-it-and-forget-it strategy is their best option for growing their retirement savings.  

Which is why target date funds have risen in popularity over the years. However, according to Rob Arnott, chairman of the board of Research Affiliates, target date funds are “a trillion-dollar industry ideas that were never tested.”²

Target date funds, also referred to as lifestyle funds and retirement date funds (you may know them as 2030, 2040, and 2050 funds), are structured to automatically reallocate as you move through different life stages. 

So as you age toward retirement, the funds shift toward more conservative investments.

On the surface, target date funds take the pain how to choose the right investments for investors. You simply choose a single target date fund, set it, and forget it. 

Investing in target date funds and sitting back and not actively managing your retirement account is saying there’s a one-size-fits-all investment strategy that works for everyone. 

Target date funds fail to take into consideration that not all investors are created equal

Individual investors are placed into the same asset allocation regardless of their salary and savings history, risk tolerance, past investment performance, lifestyle, and goals.

Secondly, the reality is that target date funds will often underperform, and do not do a good job of managing downside risk during tough markets

According to Morningstar analyst Jeffrey Holt in March 2018, “In the long run, the biggest risk in target-date funds is that they won’t meet investor expectations for avoiding losses.”³

If you are currently in a target date fund, we recommend you rethink this strategy. 

Or, at least look inside your fund’s portfolio and make sure the portion of stocks to bonds is at a level you’re comfortable with, and you’re comfortable with the level of risk you’re taking. 

If you aren’t sure what you’ve invested in, open up your statement and check, or reach out to your plan representative. In either case, we recommend seeking expert third-party advice on how to best allocate your assets. 

Download our guide 5 Ways Target Date Funds Fail to Live Up to Their Promise.

#6 Seek Professional Help as Soon as Possible 

Although you might have basic investment knowledge, utilizing an expert to do the in-depth market research could change the performance of your retirement savings accounts from good to great. 

In fact, David Blanchett, Head of Retirement, CFP, CFA of Morningstar reported that participants that received expert guidance had as much as 40% more income during retirement versus those who received no help at all.⁴

Even though your 401(k) is employer-sponsored, it does not mean they’re taking care of your 401(k) for you. 

It’s your money, and you’re responsible for your financial future

If you’re hesitant to reach out for advice because you think your account balance is too small and you need more money saved, don’t let that stop you from getting help.

This is your future we’re talking about. 

The sooner you seek expert advice, the higher the probability you’ll be better off in retirement.

401(k) Maneuver provides independent, professional account management to help employees, just you, grow and protect their 401(k) accounts.

Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that are hurting your retirement account performance. 

With 401(k) Maneuver, you can go about your life doing what you love with confidence, knowing we are handling the changes for you. 

If you’d to see how professional account management may improve your 401(k) account performance, check out our calculator. 

Have questions or concerns about your 401(k) performance? Book a complimentary 15-minute 401(k) strategy session with one of our advisors. 

Book a 401(k) Strategy Session

Sources: 

  1. The Impact of Expert Guidance on Participant Savings and Investment Behaviors. David Blanchett, Morningstar Investment Management Group, 2014.
  2. MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
  3. Special Report: Fidelity puts 6 million savers on risky path to retirement, Reuters.com March 5, 2018
  4. David Blanchet, Morningstar Analyst 2014, “The Impact of Expert Guidance on Participant Savings and Investment Behaviors”

Источник: https://www.401kmaneuver.com/6-ways-that-may-increase-retirement-savings-in-2021/

401(k) Contribution Limits for 2021

How to maximize your 401(k) with 2021 contribution changes

Contributing to your 401(k) is a great way to prepare for retirement, allowing for tax-deferred growth and, in some cases, employer matching contributions. If you really want to boost your savings, you might even contribute the maximum to the account. For 2021, the 401(k) annual contribution limit will remain unchanged from 2020 at $19,500.

For employees over 50, there are also catch-up contributions. The limits for these will also remain unchanged from 2020 at $6,500. Note that the IRS also has rules surrounding 401(k) employer matching. Many taxpayers work with a financial advisor to maximize their retirement strategy. Let’s take a look at the contribution limits and rules for 2021.

What Is the 401(k) Contribution Limit for 2021?

A 401(k) is a common type of retirement account that’s available through an employer. For the most part, these accounts are funded with pre-tax dollars.

As a result, you typically won’t pay taxes on that money until you withdraw it in retirement. These accounts also come in a Roth variation, which is the opposite of the aforementioned setup.

More specifically, a Roth 401(k) allows you to avoid taxes in retirement by paying for them upfront.

The IRS imposes a cap on how much you can contribute to your 401(k) on an annual basis. This is called the 401(k) contribution limit. Here are the rules for 2021. Since they are unchanged from 2020, we also compare them with 2019’s limits:

401(k) Contribution Limits: 2021/2020 vs. 2019
Standard 401(k) contributions$19,500$19,000
Catch-up contributions (over age 50)$6,500$6,000
SIMPLE 401(k) contributions$13,500$13,000

As the table above illustrates, the 2021 IRS limit for employee 401(k) contributions jumped $500 from the 2019 mark to $19,500. Contribution limits tend to increase during years where inflation rates also climb. This has been the case since 2009, as the rate has either increased or stayed put each year since then.

The catch-up contributions listed in the table only apply to employees who are 50 or older. For these individuals, the IRS permits an extra $6,500 in contributions each year. That’s again up $500 from the 2019 limit of $6,000. So anyone who’s at least 50 years old and enrolled in a 401(k) can contribute as much as $26,000 to their 401(k) in 2021.

Although 401(k)s are one of the most popular retirement accounts available today, the contribution limits above also apply to other retirement plans. In fact, 403(b)s, most 457 plans and the federal Thrift Savings Plan also adopt these stipulations.

Contribution Limits for Employer Matching and Highly Compensated Employees (HCEs)

Some employers will match contributions to a 401(k) account, up to a certain point. For instance, your employer may match 50% of your contributions up to 5% of your total salary.

These matching contributions don’t factor into the $19,500 standard contribution or $6,500 catch-up contribution limits, though. However, there is an overall limit for matching contributions.

In 2021, that ceiling is the lesser of $58,000 or 100% of the employee’s salary.

The IRS has a specific tax status called “highly compensated employee,” or HCE. According to the IRS website, the 2021 requirements for an HCE go as follows:

  • Over the previous year, the employee earned $130,000 or more OR
  • The employee owns more than 5% of the interest in the business at any point during the current or preceding year, regardless of compensation

While there are no explicit differences in the way the IRS limits the 401(k) contributions of HCEs, the 401(k) plan they utilize must meet some standards.

The IRS determines this by testing the plan to ensure that it does not favor HCEs in any way.

Should this process uncover that the plan is, in fact, treating HCEs and non-HCEs differently, there may be limits placed on the contributions of those HCEs.

Should You Max Out Your 401(k) Contributions?

If you have the means, contributing the full amount to your 401(k) could have major benefits. Some experts, though, would urge you to think about filling other needs before you max out your 401(k).

For starters, certain non-retirement needs may come first.

These might include paying off high-interest debts or loans, stocking your emergency fund accounts, maintaining solid health insurance and investing in long-term care insurance if you’re over 50.

There are also other options for saving for retirement. Perhaps the most notable partner of a 401(k) is the individual retirement account (IRA).

So if you want to contribute more than the 401(k) limit allows you to, consider opening an IRA too. The 2021 IRA contribution limit remains unchanged since 2019 at $6,000.

The catch-up contribution limit is $1,000, which is again the same as it was in 2019.

A Roth IRA might be a particularly good destination for your extra retirement funds. Since a Roth account offers tax-free growth and distributions, it might be a good complement to your tax-deferred 401(k). Note that even if you do favor an IRA, you should still contribute enough to your 401(k) to secure any employer matching perks.

Tax and Investment Benefits of a 401(k)

The most notable benefit of a 401(k) is that all contributions are tax-deferred. Your plan is funded directly from your paycheck, with the money coming out before it’s subject to income taxes.

By reducing your taxable income, you’re essentially taking a tax deduction, for now.

Furthermore, because less of your paycheck is going towards taxes, you’re able to contribute more to your retirement funds.

With a 401(k), you’ll have a choice of investing in multiple types of investments.

These often include some combination of mutual funds, exchange-traded funds (ETFs), index funds, bond funds and various market capitalization funds.

Many 401(k) plans provide access to investments called target-date funds, which automatically rebalance your portfolio to reduce riskiness as you approach your target retirement age.

Bottom Line

The 401(k) contribution limit for 2021 is $19,500. Workers 50 and older gain access to an additional catch-up contribution limit of $6,500, so they can contribute up to $26,000 in 2021. Be sure to take advantage of your company’s matching program as well. Note that your employer’s matching contributions don’t count toward the caps above.

Once you square away your other financial commitments, eliminate debt and have a cushion of funds for emergencies, consider getting as close as you can to the 401(k) contribution limits. Doing so will go a long way toward setting yourself up for a secure retirement.

Tips for Managing Your Retirement Savings

  • Saving for retirement is much easier said than done, but a financial advisor can get you on the right track. Luckily, your search for a suitable financial advisor can be made much easier with SmartAsset’s free advisor matching tool.

    Simply answer a series of questions about your personal needs, and you’ll be paired with up to three advisors in your area. Get started now.

  • A 401(k) isn’t the only place you should be saving for retirement. An individual retirement account, or IRA, is another option.

    It has a contribution limit of $6,000 for 2021. A traditional IRA offers the same tax benefits as a 401(k). Roth IRAs, on the other hand, don’t provide an upfront tax deduction, though you won’t have to pay taxes on your income when you retire.

  • If you want to figure out how much you will need to save to retire comfortably, SmartAsset’s retirement calculator can help you set up and plan your retirement goals.
  • If you are taking advantage of employer 401(k) matching, SmartAsset’s 401(k) calculator can help you figure out how much you will have your annual contribution and your employer’s matches.

Photo credits: ©iStock.com/AzmanL, ©iStock.com/DNY59, ©iStock.com/RossHelen

Источник: https://smartasset.com/retirement/maximum-401k-contributions

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