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Compliance Alert – 2021 Retirement Plan Limits Announced
October 27, 2020
At a Glance
The IRS released the cost of living adjustments applicable to dollar limitations for qualified retirement plans for tax year 2021. Many limits provided below did not change from 2020.
Limits Mostly Unchanged from 2020
In Notice 2020-79, the IRS released the dollar limitations for qualified retirement and certain non-qualified plans that become effective January 1, 2021. The dollar limitations adjusted by reference to IRC §415(d) are modified annually for inflation and consequently, most of them are unchanged for 2021.
QUALIFIED RETIREMENT PLAN LIMITS (2021 V 2020)
DESCRIPTION | 2021 LIMIT | 2020 LIMIT |
Participant pretax contribution limit for 401(k) and 403(b) plans Section 402(g)(1) | $19,500 | $19,500 |
Deferral limit for deferred compensation plans of state and local governments and tax-exempts Section 457(e)(15) | $19,500 | $19,500 |
Dollar Limitation for Catch-Up Contributions for Participants Age 50 or over in 401(k), 403(b), governmental 457 plans and SEPs Section 414(v)(2)(B)(i) | $6,500 | $6,500 |
Dollar Limitation for Catch-Up for Participants Age 50 or over Contributions to a SIMPLE IRA or a SIMPLE 401(k) Section 414(v)(2)(B)(ii) | $3,000 | $3,000 |
Defined Benefit Plan Limit1 Section 415(b)(1)(A) | Lesser of $230,000 or 100% of the participant's 3 year high compensation | Lesser of $230,000 or 100% of the participant's 3 year high compensation |
Defined Contribution Plan Limit Section 415(c)(1)(A) | Lesser of $58,000 or 100% of participant's compensation | Lesser of $57,000 or 100% of participant's compensation |
Maximum ESOP account balance subject to a 5-year distribution period/increments for additional year Section 409(o)(1)(C)(ii) | $1,165,000/$230,000 | $1,150,000/$230,000 |
Highly Compensated Employee dollar threshold Section 414(q)(1)(B) | $130,000 | $130,000 |
Definition of Key Employee in a Top-Heavy Plan—officer compensation threshold Section 416(i)(1)(A)(i) | $185,000 | $185,000 |
Annual limit on includible compensation for benefits and allocations2 Sections 401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii) | $290,000 | $285,000 |
SEP employee participation floor Section 408(k)(2)(C) | $650 | $600 |
Simple Retirement Accounts contribution limit Section 408(p)(2)(E) | $13,500 | $13,500 |
Compensation amount of control employees for fringe benefit valuation purposes Treas. Reg. Section 1.61-21(f)(5)(i) and (iii) | $150,000/$235,000 | $115,000/$230,000 |
