The Internal Revenue Service recently announced its cost-of-living adjustments applicable to dollar limitations on benefits and contributions for retirement plans generally effective for Tax Year 2021 (see IRS Notice 2020-79). Most notably, many of the retirement plan limitations, including the limitation on annual salary deferrals into a 401(k) or 403(b) plan, remain unchanged. The more significant dollar limits for 2021 are as follows:
| LIMIT | 2020 | 2021 |
| 401(k)/403(b) Elective Deferral Limit (IRC § 402(g))
The annual limit on an employee’s elective deferrals to a 401(k) or 403(b) plan made through salary reduction. |
$19,500 | $19,500 |
| Government/Tax Exempt Deferral Limit (IRC § 457(e)(15))
The annual limit on an employee’s elective deferrals concerning Section 457 deferred compensation plans of state and local governments and tax-exempt organizations. |
$19,500 | $19,500 |
| 401(k)/403(b)/457 Catch-up Limit (IRC § 414(v)(2)(B)(i))
In addition to the regular limit on elective deferrals described above, employees over the age of 50 generally can make an additional “catch-up” contribution not to exceed this limit. |
$6,500 | $6,500 |
| Defined Contribution Plan Limit (IRC § 415(c))
The limitation for annual contributions to a defined contribution plan (such as a 401(k) plan or profit sharing plan). |
$57,000 | $58,000 |
| Defined Benefit Plan Limit (IRC § 415(b))
The limitation on the annual benefits from a defined benefit plan. |
$230,000 | $230,000 |
| Annual Compensation Limit (IRC § 401(a)(17))
The maximum amount of compensation that may be taken into account for benefit calculations and nondiscrimination testing. |
$285,000
($425,000 for certain gov’t plans) |
$290,000
($430,000 for certain gov’t plans) |
| Highly Compensated Employee Threshold (IRC § 414(q))
The definition of an HCE includes a compensation threshold for the prior year. A retirement plan’s discrimination testing is based on coverage and benefits for HCEs. |
$130,000
(for 2021 HCE determination) |
$130,000
(for 2022 HCE determination) |
| Key Employee Compensation Threshold (IRC § 416)
The definition of a key employee includes a compensation threshold. Key employees must be determined for purposes of applying the top-heavy rules. Generally, a plan is top-heavy if the plan benefits of key employees exceed 60% of the aggregate plan benefits of all employees. |
$185,000 | $185,000 |
| SEP Minimum Compensation Limit (IRC § 408(k)(2)(C))
The mandatory participation requirements for a simplified employee pension (SEP) includes this minimum compensation threshold. |
$600 | $650 |
| SIMPLE Employee Contribution (IRC § 408(p)(2)(E))
The limitation on deferrals to a SIMPLE retirement account. |
$13,500 | $13,500 |
| SIMPLE Catch-up Limit (IRC § 414(v)(2)(B)(ii)))
The maximum amount of catch-up contributions that individuals age 50 or over may make to a SIMPLE retirement account or SIMPLE 401(k) plan. |
$3,000 | $3,000 |
| Social Security Taxable Wage Base
See the 2021 SS Changes Fact Sheet. This threshold is the maximum amount of earned income on which Social Security taxes may be imposed (6.20% paid by the employee and 6.20% paid by the employer). |
$137,700 | $142,800 |