The Internal Revenue Service has announced cost-of-living-adjusted limits for 2021 that affect the operation of tax-qualified retirement plans, including 401(k) plans and certain other types of employee benefit plans, including deferred compensation plans that may be subject to Internal Revenue Code §409A. The amount by which the limits are adjusted each year is based on a cost of living index. Not all limits increase every year. In connection with the increased limits for 2021, employers should revise participant communications and election forms, amend plan documents and summary plan descriptions and update all payroll and/or human resource systems with the new dollar amount limitations.
The Social Security (OASDI) taxable wage base, which governs the amount of pay subject to Social Security tax withholding and affects plans that are "integrated" with Social Security, also is subject to adjustment annually. For 2021 the OASDI taxable wage base has been increased to $142,800.
Adjusted LimitsLimits increased from 2020 in red |
|
| Provision | 2021 Limit |
| Maximum 401(k) Contributions | $19,500 |
| Maximum Compensation Limit | $290,000 |
| Highly Compensated Employees
Earning (in previous year) more than |
$130,000 |
| Key Employee Compensation Limit | $185,000 |
| Annual Contribution Limit for Defined Contribution Plans | $58,000 |
| Annual Benefit Limit for Defined Benefit Plans | $230,000 |
| SIMPLE Plan Limit | $13,500 |
| Age 50 and Older Catch-Up Contribution Limit
All plans other than SIMPLE PlansSIMPLE Plans |
$6,500$3,000 |
| Annual Contribution Limit for Section 457 Deferred Compensation Plans (government and tax-exempt organizations) | $19,500 |
| ESOP
Maximum account balance subject to five-year distribution periodEach incremental dollar amount in excess of account balance that adds one year to five-year distribution period |
$1,165,000 $230,000 |
| Simplified Employee Pension Plans (SEPs)
Contributions must be made for employees earning at least |
$650 |
| 409A Minimum Specified Employee (Officer) Compensation Requirement | $185,000 |
| 409A Involuntary Separation Pay Exception | $580,000 |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
