New 401(k) Rules For 2021

The basic math tells us that in order to save $26,000 of your income, you’d need to set aside $2,167 per month. 

If you’re age 50 or older, be sure to pay attention to the increased maximum contribution you can enjoy. But if you’re younger, perhaps your parents or other older relatives would appreciate a little nudge to add these catch-up contributions to their nest egg. It’s good to talk to your parents about retirement, anyway. 

Saver’s Credit for Your 401(k)

For lower-income and moderate-income earners, there’s a benefit called the retirement savings contributions credit, or saver’s credit. A saver’s tax credit applies to those putting money into a 401(k), traditional or Roth IRA, 403(b), 457(b), TSP, and several other accounts. 

Depending on gross adjusted income, a person may be eligible for this tax credit worth 10%, 20%, or 50% of 401(k) or similar contributions. 

The 401(k) rules for 2021 stipulate that the maximum saver’s tax credit is $2,000 per individual. For a married couple filing jointly, this means a total of $4,000 for the two of them. 

Another change to note about the saver’s credit for 2021 taxes is regarding your income. The maximum income level has increased to $33,000 for individuals, $49,500 for head of household, and $66,000 for married couples. 

Make a 401(k) Part of Your New Year Strategy

As we begin a new year, we likely all think a bit extra about our goals and how we plan to accomplish them. It’s a great time to reflect on how well we adapted to the challenges of the past year. What were our goals a year ago? How did we fail or succeed? 

Getting your 401(k) started or continuing to max out contributions will help put you on the path to financial freedom. Knowing the contribution limits and other basic guidelines is important as you map out the upcoming year. 

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