Tax News Update    Email this document    Print this document  

October 26, 2020

IRS releases the qualified retirement plan limitations for year 2021 - 401(k) pretax remains at $19,500, catch-up limit unchanged at $6,500

The dollar limitations for qualified retirement and certain nonqualified plans that become effective January 1, 2020 have been released by the IRS in Notice 2020-79.

The dollar limitations adjusted by reference to IRC Section 415(d) are modified annually for inflation and consequently, most of them are changed for 2021.

Of particular note, the 2021 pretax limit that applies to elective deferrals to 401(k), 403(b) and most 457(b) plans remains unchanged at $19,500. The dollar limitation for catch-up contributions for participants age 50 and older is also unchanged at $6,500.

Plan participants in qualified retirement plans will need to consider the impact of the 2021 dollar limitations in their overall financial planning.

A summary of some of the cost-of-living adjustments applicable to dollar limitations for qualified retirement plans and other items for 2021 are provided on the following pages.

Qualified retirement plan limitations (2020 vs. 2021)


2020 Limit

2021 Limit

Participant pretax contribution limit for 401(k) and 403(b) plans

Section 402(g)(1)



Deferral limit for deferred compensation plans of state and local governments and tax-exempts

Section 457(e)(15)



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)



Dollar limitation for catch-up for contributions for participants age 50 or over in a SIMPLE IRA or a SIMPLE 401(k)

Section 414(v)(2)(B)(ii)



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 $57,000 or 100% of participant's compensation

Lesser of $58,000 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)



Highly compensated employee dollar threshold

Section 414(q)(1)(B)



Definition of key employee in a top-heavy plan — officer compensation threshold

Section 416(i)(1)(A)(i)



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)



SEP employee participation floor

Section 408(k)(2)(C)



SIMPLE retirement accounts contribution limit

Section 408(p)(2)(E)



Compensation amount of control employees for fringe benefit valuation purposes

Treas. Reg. Section 1.61-21(f)(5)(i) and (iii)




Contact Information
For additional information concerning this Alert, please contact:
Workforce Tax Services - Employment Tax Advisory Services
   • Debera Salam (
   • Kristie Lowery (
   • Kenneth Hausser (
Compensation and Benefits Group
   • Christa Bierma (


1 For a participant who separated from service before January 1, 2021, the participant's limitation under a defined benefit plan under IRC Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2020, by 1.0122.

2 For eligible participants in certain governmental plans that allow cost of living adjustments to the compensation limit to be taken into account, such limit is increased to $430,000 for 2021, up from $425,000 in 2020.


EY Payroll News Flash