EB Flash: IRS Announces 2021 Retirement Plan Limits
Employee Benefits Alert
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.
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