The IRS has announced the 2021 contribution limits for tax-advantaged retirement plans – there’s not a lot of change from 2020.
Don’t forget that you can contribute to both a 401(k)/TSP type employer-sponsored plan and an Individual Retirement Arrangement (IRA), and that non-working spouses can have IRAs, too.
2021 Limits for Employer-Sponsored Plans like 401(k)s and TSP
The elective deferral limit, which is the “regular” limit on employee contributions, remains at $19,500 for 2020. This is the most an employee can contribute to their employer-sponsored plans, such as the Thrift Savings Plan (TSP) under typical situations. Employer or government matching funds do not count towards that limit.
There is an additional catch-up limit for those who are age 50 or older during the year. Those folks can contribute an additional $6,500 to their employer-sponsored plans, for a total contribution of $26,000. This limit is also the same for 2021 as it was for 2020, but there’s a new method for putting catch-up contributions into TSP.
Then, there is another limit, called the annual additions limit, that applies to the total amount that can be contributed to these plans. For most people, this is the limit for the total of both employee and employer contributions, but there’s a special twist if you spend time in combat zone during the tax year. This limit rises to $58,000 (or $64,500 if you’re 50 or over.) There are some tricky rules if you’re hoping to contribute extra while you’re in a combat zone, and you’re going to want some help to make sure you do that correctly. Heck, DFAS and the TSP folks are still working out some of the rules as it applies to BRS…
Individual Retirement Arrangements (IRA)s
The 2021 limit for contributions to IRAs remains the same $6,000 per person, with an additional catch-up of $1,000 if you’re age 50 or older. IRA contributions must be made from earned income, but you can contribute to one spouse’s IRA with income earned by the other spouse. While these are technically called a spousal IRA, they’re not a special type of IRA. It’s just a special rule that permits you to use another person’s money to fund your IRA.
Roth vs. Traditional
Keep in mind that you can have your TSP money in either a Roth or a traditional TSP account, and you can also have an IRA that is either Roth or traditional. They’re entirely separate. You can even have both a traditional and Roth TSP account, as long as the total amount contributed stays under the limits. Likewise, you may have both a traditional and Roth IRA account, as long as the total amount contributed stays under the limits.
Let me know if this is confusing!