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2021 401(k) Contribution Limits

2021 401(k) Contribution Limits

Table of Contents

The IRS Updates 401(k) Contributions Periodically

For the last several decades Americans have come to rely on the 401(k) tax-advantaged, defined-contribution retirement account to help save for retirement expenses after they reach their golden years (or perhaps earlier for the lucky few). Since these plans imbue benefits that limit their exposure to taxes they are capped to certain maximums.

 Every year, beginning in the Fall, the Internal Revenue Service (IRS) takes a hard look at how the cost of living has changed for retirees from the previous year and often makes an adjustment to the amount employees and employers can make to 401(k) accounts (this also usually includes 403(b) and Thrift Savings Plan (TSP) participants as well).


The Bottom Line Up Front

    • The IRS did not increase the amount employees can contribute. It remains at $19,500 for 2021.
    • The IRS did not increase the additional amount those over 50 can contribute. It remains at $6,500 for 2021.
    • The IRS did increase the overall limit for a 401(k) that combines employee and employer contributions. This amount is $58,000 (up from $57,000).

Types of Contributions

Deferral Contribution to a 401(k)
The deferral contribution is what most of think of when we think about when we think about contributing to our 401(k) accounts. This is the amount that an employee and can set aside from their paycheck to go into either a Traditional 401(k) or a Roth 401(k).

      • 401(k) Deferral Contribution Limit for 2021: $19,500
      • 401(k) Deferral Contribution Limit for 2020: $19,500

Deferral Limit for a Simple 401(k) Plan
The deferral contribution for a SIMPLE 401(k) plan is the limit you can contribute for a 401(k) plan designed specifically for small and medium business with less than 100 employees.  The SIMPLE 401(k) has similar goals to its SIMPLE Individual Retirement Account (IRA) sibling, however, has a smaller limit than a regular 401(k) plan.

      • SIMPLE 401(k) Deferral Contribution Limit for 2021: $13,500
      • SIMPLE 401(k) Deferral Contribution Limit for 2020: $13,500

Catch-Up Contributions
Many people probably recognize that the highest earning years of our careers are later in life. Unfortunately, by the time an individual has had the time to hone their career in, the number of years to take advantage of compound interest has drastically decreased. Due to this, the IRS allows a higher amount to be contributed by those aged 50 and over and nicknames this benefit the ‘Catch-Up’ Contribution

      • 401(k) Deferral Catch-up Contribution Limit for 2021: $6,500
      • 401(k) Deferral Catch-up Contribution Limit for 2020: $6,500
      • SIMPLE 401(k) Deferral Catch-up Contribution Limit for 2021: $3,000
      • SIMPLE 401(k) Deferral Catch-up Contribution Limit for 2020: $3,000

Overall Contributions
Most beneficiaries of a defined contribution plan such as the 401(k) and SIMPLE 401(k) also have employers that deposit money in these accounts on their behalf. This may look like a 6% match or even some other lump sum payment. The IRS also places limits on these contributions by way of making a total contribution limit.

As an example: if you max your 401(k) plan for 2021 and ($19,500) then your employer is allowed to only deposit an amount that does not exceed the overall contribution limit. Luckily, this limit is well above the limit for employers which ordinarily will give you plenty of room contribute the maximums listed above.

      • 401(k) Overall Contribution Limit for 2021: $58,000 (without catch-up contributions)
      • 401(k) Overall Contribution Limit for 2020: $57,000 (without catch-up contributions)
      • 401(k) Overall Contribution Limit for 2021: $64,500 (with catch-up contributions)
      • 401(k) Overall Contribution Limit for 2020: $63,500 (with catch-up contributions)

2020 and 2021 Contribution Limit Table

Below is all the information above in a table for easy reference and comparison between contribution year. Changes from 2020 to 2021 are highlighted. As is clear, the IRS does not always make an update. From year to year it cannot be guaranteed that contribution limits will increase. In 2020, due to the Coronavirus pandemic, economists found that deflationary pressures due to lack of economic activity actually suppressed prices and thus the Cost of Living Adjustment (COLA).

Contribution Limits



401(k) Deferral (Standard)



SIMPLE 401(k)



401(k) Deferral Catch-Up



SIMPLE 401(k) Catch-Up



401(k) Overall (w/o Catch-Up)



401(k) Overall (with Catch-Up)



What happens if I contribute too much to my 401(k)

If the lucky situation arises that you earned so much income that you accidently put too much money into your 401(k) do not fret! The IRS spells out exactly what you need to do and who you need to report it to. If you should find yourself in this situation then now is time to act. Don’t wait for whatever may happen in the future when an audit several years down the road reveals you have made this mistake and now a penalty plus interest.

Extra money taken out by April 15th (Tax Day… usually)

    • If you catch the mistake prior to filing taxes for the year (e.g. over-contribute in 2021 and withdraw prior to April 15th 2022) then you just include the withdrawn amount in your gross income. Essentially, the money wasn’t taxed properly or withheld by your employer and thus it can now be corrected when you file your taxes.

Extra money not taken out by April 15th

    • This is where things get icky. Our recommendation here (as with all things) is to talk to a tax pro or your accountant. Additional financial wrangling will be necessary to ensure that the money was accumulated over time both legitimately and illegitimately is handled properly when it comes to calculating your cost basis at retirement,

How to tell report corrections

    • The IRS very simply states that Form 1099-R will be where you report corrections in distributions or excess deferrals. As stated above: to protect your nest egg it would be a good idea to take this topic to a professional. If you have saved a significant sum over the years you will want to not only make sure you protect it, but you will also want to generate the appropriate documentation and records to defend legitimate contributions in the future in the case they are every questioned.


With all of these facts in hand you should be well set to continue your 401(k) savings. As always, make sure you keep up to date on changes. Somewhere in October or November of 2021 there will be an update from the IRS on what the contribution limits will be for 2022… rest assured we will add a link to this page once they do. A rule of thumb I always followed was to update my 401(k) contribution amounts on New Year’s Eve to reflect an even distribution of the maximum contribution over 12 months. Since it’s the last day of the year, likely your Human Resources department won’t process the action until sometime in early January but prior to your first paycheck of the new year.


    • IRS: This link is to IRS’s own page on 401(k) contribution limits for 2021
    • 401(k) Calculator A pretty decent 401(k) calculator from bankrate that will help you decide what type of contributions make sense for you.

Guy Money

As a formally trained Data Scientist I find excitement in writing about Personal Finance and how to view it through a lens filtered by data. I am excited about helping others build financial moats while at the same time helping to make the world a more livable and friendly place.

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