IRS adjusts its retirement savings rules annually. It’s always good to keep up with these changes for progressive retirement savings. The following are key facts on retirement savings for 2021. They will maximize a person’s contributions and draw them closer to a better retirement.
From the salary, a person can contribute up to $19,500. Suppose they are 50 or above before the year-end. They can contribute an extra $6,500 in catch-up contributions. These retirement contribution limits affect amounts deducted directly from their salary.
There are separate limits for overall contributions, including employer match and non-elective employer deposits. These apply to self-employed people and business owners who have their retirement savings plan. This year, a person’s total contribution can’t exceed $58,000 or $64,500 if they are hitting 50 and above, and they include catch-up contributions.
The total contribution can’t exceed salary. In a nutshell, suppose compensation is $45,000, the contribution limit will be $45,000. No more.
Health Savings Account limits for 2021
If a person has active retirement contributions, they should direct some pre-taxed money towards HSA if they have one. HSA will help those with high deductible health plans save taxes on dollars designated for medical-related costs not covered by the program.
The assets contributed to HSA remain with a person in the long term and are rolled over every year compared to FSA (Flexible Spending Account), which one either uses or loses. The HSA contribution has a triple tax advantage; it isn’t taxed, it grows tax-free, and when making qualified medical expenses, there are no taxes incurred. Exploit the increased 2021 HSA limits; this will come in handy in settling health-related expenses when one retires.
Income Limits on IRA Contributions
This year, there are no changes; a person can contribute $6,000 and an additional $1,000 if they are qualified for a catch-up contribution.
Think of Starting
It doesn’t matter how soon a person will retire; the most important thing is to start the journey of saving for retirement. Make a bold move by setting some little money aside, and one should increase this amount with time when it’s viable. Follow the five steps to creating a retirement plan, and you will be good to go.