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401k and Retirement Plan Limits for the Tax Year 2021On October 26, 2020, the Internal Revenue Service announced that employees in 401k plans will be able to contribute up to $19,500 next year. The IRS announced this and other changes in Notice 2020-79. This guidance provides cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2021.
Highlights of Changes for 2021 Effective January 1, 2021, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) remains unchanged at $230,000. For a participant who separated from service before January 1, 2021, the participant’s limitation under a defined benefit plan under § 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2020, by 1.0122. The limitation for defined contribution plans under § 415(c)(1)(A) is increased for 2021 from $57,000 to $58,000. The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of § 415(b)(1)(A). After considering the applicable rounding rules, the amounts for 2021 are as follows: The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) remains unchanged at $19,500. The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $285,000 to $290,000. The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of "key employee" in a top-heavy plan remains unchanged at $185,000. The dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,150,000 to $1,165,000, while the dollar amount used to determine the lengthening of the 5-year distribution period remains unchanged at $230,000. The limitation used in the definition of "highly compensated employee" under § 414(q)(1)(B) remains unchanged at $130,000. The dollar limitation under § 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in § 401(k)(11) or § 408(p) for individuals aged 50 or over remains unchanged at $6,500. The dollar limitation under § 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or § 408(p) for individuals aged 50 or over remains unchanged at $3,000. The annual compensation limitation under § 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under § 401(a)(17) to be taken into account, is increased from $425,000 to $430,000. The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $600 to $650. The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $13,500. The limitation on the aggregate amount of length of service awards accruing with respect to any year of service for any bona fide volunteer under § 457(e)(11)(B)(ii) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $6,000. The limitation on deferrals under § 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $19,500. The limitation under § 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000. The compensation amount under § 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of "control employee" for fringe benefit valuation purposes remains unchanged at $115,000. The compensation amount under § 1.61-21(f)(5)(iii) is increased from $230,000 to $235,000. The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under § 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $135,000. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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