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The IRS has published benefit and retirement plan contribution limits for 2021. Notice 2020-79 defines the updated dollar limitations for tax qualified benefit and defined contribution plans.
Many contribution and benefit limits for employer-sponsored plans remain unchanged for 2021, however nonqualified deferred compensation (NQDC) plan participants will want to consider how much of next year’s salary to defer. Follow this link to learn more about the tax benefits and retirement planning opportunities of nonqualified deferred compensation plans.
2021 Benefit and Retirement Plan Contribution Limits
|The limitation used in the definition of “highly compensated employee” under § 414(q)(1)(B) remains unchanged.||$130,000||$130,000|
|The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan remains unchanged.||$185,000||$185,000|
|The limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) remains unchanged.||$230,000||$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 dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan ESOP subject to a 5-year distribution period is increased.||$1,150,000||$1,165,000|
|The dollar amount used to determine the lengthening of the 5-year distribution period (see above) remains unchanged.||$230,000||$230,000|
|The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased; this is the amount of compensation that may be used for benefit calculation.||$285,000||$290,000|
|The limitation for defined contribution plans under § 415(c)(1)(A) is increased.||$57,000||$58,000|
|The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) remains unchanged; this is the dollar limit on elected deferrals into a 401(k) 403(b) or 457(b) plan.||$19,500||$19,500|
|Catch up contribution limit for participants age 50 or over||$6500||$6500|
|Taxable wage base increased.||$142,800||$137,700|
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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.
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