IRS announces 2021 dollar limit increases on benefits and contributions in qualified retirement plans
On October 26, 2020, the Internal Revenue Service (IRS) issued Notice 2020-79, which announced cost-of-living adjustments in the dollar limits on benefits and contributions in retirement plans.
The table below reflects the 2020 limits and the new 2021 limits beginning January 1, 2021.
| QUALIFIED RETIREMENT PLANS | ||
|
| 2020 | 2021 |
| 401(k), 403(b), most 457 and other savings plans | Limit | Limit |
| Elective Deferrals | $19,500 | $19,500 |
| Catch-up Contributions (for participants age 50 or older) | $6,500 | $6,500 |
| Defined Contribution – Maximum Annual Additions | $57,000 | $58,000 |
| Annual Compensation Limit (Code Sections: 401(a)(17); 404(l); 408(k)(3)(C) and 408(k)(6)(D)(ii)) | $285,000 | $290,000 |
| 457 Elective Deferrals (Code Section: 457(e)(15)) | $19,500 | $19,500 |
| Highly Compensated Employee (Code Section: 414(q)(1)(B)) | $130,000 | $130,000 |
| Key Employee Compensation Limit (Code Section: 416(i)(1)(a)(i)) | $185,000 | $185,000 |
| Defined Benefit - Maximum Annual Benefit (Code Section: 415(b)(1)(A)) | $230,000 | $230,000 |
|
|
| |
| SIMPLE plans |
|
|
| Maximum Contributions | $13,500 | $13,500 |
| Catch-up Contributions (for participants age 50 or older) | $3,000 | $3,000 |
Background
Applicable tax law places limits on the dollar amount of contributions to qualified retirement plans and IRAs and the amount of benefits under qualified pension plans. Internal Revenue Code Section 415 requires the limits to be adjusted annually for cost-of living increases.
Action items for employers
- Update any plan document materials that identify the annual limitations.
- Update participant communications as the limits may impact important benefit elections for 2021.
- Update Human Resource Information Systems (HRIS) and/or payroll systems with new limitations for administration, recordkeeping and tax reporting.
- Ensure all data vendor feeds are updated to comply with the new limits.
For more information, please contact any of the members of our Employee Benefits and Executive Compensation group.
Sherry Klenk is a consultant with DLA Piper’s Employee Benefits and Executive Compensation group, based in Chicago. Reach her at sherry.klenk@dlapiper.com.
