On October 26, 2020, the IRS announced the Cost of Living Adjustments affecting the dollar limitations for retirement plans. Contribution and benefit increases are intended to allow participant contributions and benefits to keep up with the “cost of living” from year to year. Here are the highlights from the 2021 limits:
- The elective deferral limit remains unchanged at $19,500. This deferral limit applies to each participant on a calendar year basis. The limit applies to 401(k) plans, including Roth and pre-tax contributions, 403(b), and 457(b) plans.
- Catch-up contributions remain unchanged at $6,500 and are available to all participants age 50 and older in 2021.
- The maximum dollar amount that can be contributed to a participant’s retirement account in a defined contribution plan increased from $57,000 to $58,000. The limit includes both employee and employer contributions as well as any allocated forfeitures. For those over age 50, the annual addition limit increases by $6,500 to include catch-up contributions.
- The annual benefit limit which applies to participants in a defined benefit plan remains unchanged at $230,000.
- The maximum amount of compensation that can be considered in retirement plan compliance has been raised to $290,000. In addition, income subject to Social Security taxation has increased to $142,800.
- Thresholds for determining highly compensated and key employees remain unchanged at $130,000 and $185,000, respectively.
| Annual Plan Limits | 2021 | 2020 | 2019 |
|---|---|---|---|
| Contribution and Benefit Limits | |||
| Elective Deferral Limit | $19,500 | $19,500 | $19,000 |
| Catch-Up Contributions | $6,500 | $6,500 | $6,000 |
| Annual Contribution Limit | $58,000 | $57,000 | $56,000 |
| Annual Contribution Limit including Catch-Up Contributions | $64,500 | $63,500 | $62,000 |
| Annual Benefit Limit | $230,000 | $230,000 | $225,000 |
| Compensation Limits | |||
| Maximum Plan Compensation | $290,000 | $285,000 | $280,000 |
| Income Subject to Social Security | $142,800 | $137,700 | $132,900 |
| Key EE Compensation Threshold | $185,000 | $185,000 | $180,000 |
| Highly Compensated EE Threshold | $130,000 | $130,000 | $125,000 |
| IRA Limits | |||
| SIMPLE Plan Elective Deferrals | $13,500 | $13,500 | $13,000 |
| SIMPLE Catch-Up Contributions | $3,000 | $3,000 | $3,000 |
| Individual Retirement Account (IRA) | $6,000 | $6,000 | $6,000 |
| IRA Catch-Up Contribution | $1,000 | $1,000 | $1,000 |
If you have any questions on how these increases can affect your plan, please contact your representative. ■
This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.
©2020 Benefit Insights, Inc. All rights reserved.