Contribution limits are an important aspect of personal finance that everyone should be aware of. Whether it’s for retirement savings, health care expenses, or education funds, understanding the restrictions and rules surrounding contribution limits can help you make informed decisions about your financial future. In this article, we will explore the top 15 contribution limits that individuals need to know.
1. Retirement Plans:
a) 401(k) – The annual contribution limit for a 401(k) plan in 2021 is $19,500 for those under 50 years old. If you’re over 50, catch-up contributions allow an additional $6,500.
b) Individual Retirement Accounts (IRA):
i) Traditional IRA – For both traditional and Roth IRAs, the maximum contribution limit in 2021 is $6,000 for individuals under 50 and an additional $1,000 as catch-up contributions if you’re over 50.
ii) Roth IRA – Same as Traditional IRA.
2. Health Savings Accounts (HSA):
a) HSA Contribution Limits – In 2021, individuals with self-only coverage can contribute up to $3,600 to their HSAs while those with family coverage can contribute up to $7,200.
b) Catch-Up Contributions – Individuals aged 55 or older can make additional catch-up contributions of up to $1,000 annually.
3. Education Savings:
a) Coverdell Education Savings Account (ESA): The maximum yearly contribution limit per beneficiary is $2,000.
b) Qualified Tuition Program (QTP)/529 Plan: There is no federal limit on contributions; however,
each state sets its own limits which usually range from around $250k-$500k.
4. Flexible Spending Accounts (FSA):
a) Healthcare FSA – The maximum annual pre-tax contribution limit for healthcare FSAs in most cases is $2,750.
b) Dependent Care FSA – The maximum contribution limit for dependent care FSAs is $5,000 per year for individuals or married couples filing jointly.
5. Social Security:
a) Social Security Tax – As of 2021, the maximum taxable earnings subject to Social Security tax is $142,800.
6. Donor-Advised Funds (DAF):
a) Contribution Limits – DAFs generally have no minimum annual contribution requirement but may impose a minimum initial contribution of around $5,000 or more.
7. Employee Stock Ownership Plans (ESOP):
a) Contribution Limit – Employees can contribute up to 25% of their salary or $58,000 (whichever is less).
8. Cash Contributions:
a) Deductible Cash Contributions – Generally limited to 60% of your adjusted gross income (AGI).
b) Non-Deductible Cash Contributions – Not subject to any limits but won’t provide you with any tax benefits either.
9. Individual Savings Accounts (ISAs):
a) Lifetime ISA (UK Only): Individuals aged 18-39 can contribute up to £4,000 annually until they turn 50.
10. Political Campaign Donations:
a) Federal Elections: An individual can contribute up to $2,900 per election cycle.
b) State and Local Elections: Contribution limits vary by state and locality.
11. Crowdfunding Platforms:
a) Crowdfunding campaigns often have varying contribution limits set by the platform or project creator.
12. Municipal Bonds:
a) No universal limit exists on purchasing municipal bonds; however,
brokers may impose their own restrictions depending on the investor’s financial situation.
13. Real Estate Investment Trusts (REITs):
a) No specific contribution limits exist for REIT investments; however,
investors should consider personal financial goals and risk tolerance when investing.
14. Peer-to-Peer Lending:
a) Contribution limits for P2P lending platforms vary by provider and may be subject to regulatory restrictions.
15. Cryptocurrency Investments:
a) No universal contribution limits exist, but individuals should consider their risk tolerance and financial goals before investing in cryptocurrencies.
Understanding these contribution limits is crucial for effective personal financial planning. It ensures that you make the most of available tax advantages while adhering to legal boundaries set by various entities. Always consult with a financial advisor or tax professional to ensure compliance with applicable laws based on your individual circumstances.