It’s that time of year once again when the U.S. Internal Revenue Service has announced its 2021 limitations on retirement plans for the 2021 tax year.
The 401(k) retirement maximum contribution limit remains unchanged at $19,500 for elective deferrals in 2021, with a maximum contribution increasing to $58,000 for all sources (employee and employer). Human resources and payroll should update their systems and employee communications, as appropriate, reflecting changes effective January 1, 2021.
|
Limits
Defined
Contribution Plans 401(k), 403(b), 457 & Most Federal Thrift Savings Plans | 2020 | 2021 |
| Maximum elective deferral (employee) | $19,000 | $19,500 |
| Maximum contribution–all sources (employee & employer) | $57,000 | $58,000 |
| Age 50+* catch-up contribution (employee) | $6,500 | $6,500 |
| Age 50+* maximum contribution—all sources plus catch up (employee & employer) | $63,500 | $64,500 |
| Compensation ceiling for calculating contributions | $285,000 | $290,000 |
| Nondiscrimination testing—compensation limitation for “key employees” | $185,000 | $185,000 |
| Nondiscrimination testing—compensation limitation for “highly compensated employees” | $130,000 | $130,000 |
| Limits Defined Benefit Plans | 2020 | 2021 |
| Annual benefit limitation | $230,000 | $230,000 |
*If age 50+ by year-end
The IRS has also announced the Individual Retirement Account (IRA) limits effective January 1, 2021. The IRA retirement annual contribution limit for 2021 is $6,000. If you are over 50, the annual catch up contribution not subject to an annual cost-of-living adjustment is $1,000.
| Limits Individual Retirement Accounts | 2020 | 2021 |
| Annual contribution limit | $6,000 | $6,000 |
| Age 50+* annual catch-up contribution not subject to annual cost-of-living adjustment | $1,000 | $1,000 |
*If age 50+ by year-end
Additional information and technical guidance may be found in the IRS source documents, as noted below:
The Internal Revenue Service announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2021.
Highlights of Changes for 2021
See how the 2021 maximum contribution limits compare to the 2020 contribution limits.
The Social Security Administration has announced 2021 payroll tax increases, as well. Learn more and find more information about new changes that the Social Security Administration is rolling out at ERI Economic Research Institute.
