October 26, 2020
2020-2557 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) Description | 2020 Limit | 2021 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 contributions for participants age 50 or over in 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 $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) | $1,150,000/$230,000 | $1,165,000/$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) | $285,000 | $290,000 | SEP employee participation floor Section 408(k)(2)(C) | $600 | $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) | $115,000/$230,000 | $115,000/$235,000 |
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ENDNOTES 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. ———————————————
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