The Internal Revenue Service (IRS) today issued Notice 2020-79, which provides inflation-adjusted dollar limits for retirement plans for 2021.

The following highlights some of the key tax-qualified plan changes for 2021:

• Defined Contribution Plan Limits
  • Annual Addition Limit: The annual Section 415(c) limit for all contributions to an employee’s defined contribution plan account is increased from $57,000 to $58,000.
  • Elective Deferral Limit: The contribution limit for employees who participate in Section 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $19,500.
  • Catch-up Contribution Limit: The catch-up contribution limit for employees aged 50 and over who participate in these plans remains unchanged at $6,500.
• Defined Benefit Plan Limits
  • Annual Benefit Limit: The annual Section 415(b) "dollar" limit remains unchanged at $230,000.
• Annual Compensation Limit: The annual compensation limit under Section 401(a)(17) is increased from $285,000 to $290,000.
• Highly Compensated Employee Threshold: The amount of compensation used to determine which employees are "highly compensated employees" under Section 401(a)(17) remains unchanged at $130,000. Under the look-back rule, employees would be highly compensated in 2021 if they received compensation in excess of the $130,000 limit in 2020. This limit does not impact employers who elected to use the top-paid group (top 20 percent ranked by compensation) test for determining highly compensated employee status.

The four-page text of Notice 2020-79 is posted here. A press release issued by the IRS announcing the 2021 updates is posted here.

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