Photo of young family reviewing their 2020 retirement contributions limits with their financial advisor.

2021 retirement contribution limits and income ranges: what to know

If you’re proactive about retirement savings or want to up your savings game this year, you may already know that retirement contribution limits stayed the same for 2021. Let's break down what this and other recent changes can mean for your retirement plans, whether you’re already saving or just getting started.

2021 retirement contribution limits at a glance

Contribution limits didn’t increase for the 2021 tax year, but you can still continue to make good progress toward retirement.

Savers 50 and older can continue to set aside more money in their employer’s plan (if allowed by the plan) to help reach their retirement goals, called catch-up contributions.

And if you’re not quite ready to max out your retirement savings this year, consider gradually increasing your contributions to save more for a secure retirement.

AccountContribution limitCatch-up limit
(if you are 50+)
Employer-sponsored plans:
401(k), 403(b), 457 plans, thrift savings plan
Contribution limit
Catch-up limit (if you are 50+)
Individual retirement account (IRA)
Contribution limit
Catch-up limit (if you are 50+)
Roth IRA
Contribution limit
Catch-up limit (if you are 50+)

Some retirement plans have set a lower limit, so check the details of your own employer’s plan.

Updates to income limits for Roth IRA contributions

If you’re already contributing to an employer-sponsored plan, like a 401(k), you can also contribute to a traditional IRA. But there are restrictions on what you can deduct from your taxes, based on your income. For 2021, those income ranges increased (get all the details on the IRS website). Depending how much money you make, you may be able to deduct more of your IRA contributions from your taxes.

While traditional IRAs aren’t subject to income limits, Roth IRAs are. That limit increased for 2021.

AccountWhat it isIncome limitTax deduction limits
What it is
Helps you invest for retirement with pre-tax deposits.
Income limit
Tax deduction limits
You may take full, partial, or no deduction based on your income level and retirement plan.
Roth IRA
What it is
Funded with after-tax dollars, but your eventual qualified withdrawals may be tax-free.
Income limit
Single/head of household: $125,000

Married filing jointly: $198,000
Tax deduction limits
Not deductible

For more information about IRA tax deduction limits, check out the IRS parameters for those who are covered or aren’t covered by a retirement plan at work.

2021 HSA contribution limits increase

If you’re already maxing out your 401(k) or other retirement contributions, you might consider putting pre-tax dollars toward an HSA (health savings account), if you have one. An HSA helps those with high-deductible health plans save taxes on money earmarked for medical expenses not covered by the plan.

Unlike a flexible spending account (FSA), which has a “use it or lose it” provision, the assets you contribute to an HSA are yours for the long term and can be rolled over each year. Plus, it offers a triple tax advantage: money put in isn’t taxed, it grows tax-free, and you’re not taxed when you take money out to pay for qualified medical expenses.

Taking advantage of the increased 2021 HSA contribution limits may help you pay for health-related expenses down the line in retirement.

Coverage type2021 HSA limit
Family coverage$7,200

When you haven’t started saving for retirement (yet)

No matter how far you are from retirement, don’t beat yourself up for not starting sooner. The important thing is to get started.

Take the first step by setting aside a small amount of money. Then increase it over time when you can afford it. Read “5 steps to creating your retirement plan” to help you get started.

“Of course, if your employer offers a matching contribution in its 401(k) plan, try to set aside enough to get that match by increasing your contribution rate,” says Heather Winston, assistant director of financial advice and planning at Principal®. The company can help to grow your nest egg, and that free money can flow from them to you.

One simple step

“It’s never too late to start. Think about when you get a salary increase, bonus, or lump sum. Use it to your advantage. If your salary goes up 3%, taking 1% or 2% of that and putting it toward your retirement is money you likely won’t miss," Winston says.

Let’s say you find ways to save as little as $25 a week. That can make a difference over time. When contributing to a 401(k) plan for 20 years at a 6% rate of return, that amount could grow to more than $49,000.1

Now imagine if you could set aside even more.

Next steps

1 The assumed rate of return in this example is hypothetical and does not guarantee any future returns nor represent the returns of any particular investment. Amounts shown do not reflect the impact of taxes on pre-tax distributions. Individual taxpayer circumstances may vary. This is for illustrative purposes only.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

Increasing your contribution does not guarantee you put yourself in a better spot.

Investing involves risk, including possible loss of principal.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, Iowa 50392.