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What is a 401(k) contribution plan? Basic 401(k) contribution limits Traditional 401(k) vs. Roth 401(k) contribution limits2020 vs. 2021 contribution limits for traditional and Roth 401(k)sContribution limits for other retirement plansThe bottom line
401(k) Contributions for Retirement

All retirement savings plans have contribution limits. Although the contribution limits for 401(k) plans in 2021 were mostly unchanged from 2020, there were a few important updates to total contribution limits. 

What is a 401(k) contribution plan?

A 401(k) is a tax-deferred retirement savings plan typically offered through an employer. An employee designates a certain percentage of their salary to flow directly into that account before any taxes are paid on that money. This is called elective deferral: The employee elects to defer part of their salary to their 401(k), before taxes. Employees may also have the option to make voluntary after-tax contributions to their 401(k), though they don’t often choose to, as these are not tax-advantaged. 

Some employers also choose to contribute to employee 401(k) plans. The employer may match employee contributions dollar-for-dollar up to a certain amount or percentage of their salary, or contribute 50 cents on top of every dollar they contribute. Employers may also make other types of contributions to employee plans, like profit-sharing.

Basic 401(k) contribution limits

The annual elective 2021 deferral limit for a 401(k) plan is $19,500, but employees 50 and older can make an annual catch-up contribution of $6,500, bringing their total limit to $26,000. If an employer chooses to match some or all of employee contributions, those employer contributions do not count toward the elective deferral limit. They do count toward the overall contribution limit.

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Traditional 401(k) vs. Roth 401(k) contribution limits

Again, traditional 401(k)s are employer-sponsored retirement plans. Employees make their contributions with pretax dollars, and the money isn’t taxed until it’s withdrawn in retirement. With Roth 401(k)s, contributions are made with after-tax dollars, so investors don’t have to pay taxes on their withdrawals. 

Traditional 401(k)

The 2021 contribution limits for traditional 401(k)s are:

  • For employees: $19,500, plus a $6,500 catch-up contribution for those 50 and older.
  • For total employer and employee contributions: $58,000, plus a catch-up contribution of $6,500 for those 50 and older.

Roth 401(k) 

The 2021 contribution limits for Roth 401(k)s are:

  • For employees: $19,500, plus a catch-up contribution of $6,500 for those 50 and older.
  • For employers: $58,000, plus a catch-up contribution of $6,500 for those 50 and older.

2020 vs. 2021 contribution limits for traditional and Roth 401(k)s

Here are some key ways annual contribution limits changed in 2021. 

  • Increased total contribution limits. In 2021, the total amount employers and plan participants can contribute to a 401(k) is $58,000, or $64,500 with a catch-up contribution. In 2020, that limit was lower—$57,000, or $63,500 with a catch-up contribution.

  • Increased thresholds for high-earning employees. Highly compensated employees are defined by the IRS as those earning $130,000 or more in 2020 or 2021, or those who owned more than 5% of a company at any time during that period. In 2020, the employee compensation limit for calculating contributions was $285,000. In 2021, that number rose to $290,000. 
Investing well for retirement is a crucial act. At Titan, our expert investment analysts steward your capital through actively-managed, high growth-potential portfolios. Sign up takes minutes, and our Client Experience team is here to help you step-by-step as you migrate your retirement funds over to Titan. Get started today.


Disclosures

Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see
Titan’s Legal Page for additional important information.

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Contribution limits for other retirement plans

Investors without a 401(k) may want to consider other retirement plans as they work toward their savings goals. 

403(b) plan

A 403(b) plan is administered by certain tax-exempt organizations such as public schools. Similar to a 401(k), 403(b) plans allow pretax contributions, and tax isn’t due until the money is withdrawn. The contribution limits are: 

  • For employees: $19,500, plus a catch-up contribution of $6,500 for those 50 and older  in 2021 and 2020
  • For employees and employers: $58,000 in 2021 ($57,000 for 2020)

Some plans allow employees who’ve worked at least 15 years to make an additional $3,000 contribution.

Simple 401(k) plan 

A Simple 401(k) plan is run by small businesses with 100 or fewer employees. The contribution limits are: 

  • For employees: $13,500, plus a catch-up contribution of $3,000 for those 50 and older in 2021 and 2020
  • For employers: a dollar-for-dollar match up to 3% of employee pay or a 2% non-elective contribution for each eligible employee

SIMPLE IRA 

A Savings Incentive Match Plan for Employees (SIMPLE) IRA allows employees and employers to contribute to traditional IRAs for employees. The contribution limits are: 

  • For employees: $13,500, plus a catch-up contribution of $3,000 for those 50 and older in 2021 and 2020
  • For employers: Generally required to match employee contributions on a dollar-for-dollar basis up to 3% of the employee’s compensation, or nonelective contributions of 2% of each eligible employee’s compensation

SEP IRA plan

Businesses of any size can establish a Simplified Employee Pension Plan (SEP) IRA. The contribution limits are:

  • For employees: No contributions allowed 
  • For employers: Pretax contributions cannot exceed the lesser of 25% of an employee's compensation or $58,000 in 2021 ($57,000 for 2020)

The bottom line

Many investors track the IRA contribution limits set by the IRS. The contribution limits for 401(k) plans in 2021 were largely unchanged, although what an employer and employee can contribute in combination has been revised.

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Investing well for retirement is a crucial act. At Titan, our expert investment analysts steward your capital through actively-managed, high growth-potential portfolios. Sign up takes minutes, and our Client Experience team is here to help you step-by-step as you migrate your retirement funds over to Titan. Get started today.


Disclosures

Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see
Titan’s Legal Page for additional important information.

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