On October 26, 2020, the Internal Revenue Service (IRS) updated various dollar limitations that apply to tax-qualified retirement plans for 2021. The new amounts, published in Notice 2020-79, are annually adjusted for cost of living. Despite the potential impact of COVID-19 on employee pay, most of the annual compensation limitations have been adjusted upwards. The annual additions limitation for defined contribution plans (which includes both employee elective deferrals and employer contributions) has been increased, too, although the elective deferral and catch-up contribution maximums have not changed. Key 2021 amounts that affect tax-qualified retirement plans are listed below, compared to the current amounts. Changes from the current amounts are bolded.
| Internal Revenue Code (IRC) or Regulation Section |
2021 |
2020 |
Defined benefit plan limit:
IRC § 415(b)(1)(A) |
$230,000 |
$230,000 |
| Defined contribution plan limit: IRC § 415(c)(1)(A) |
$58,000 |
$57,000 |
| Elective deferral exclusion limitation: IRC § 402(g)(1) |
$19,500 |
$19,500 |
Annual compensation limit:
IRC § 401(a)(17)/404(l) |
$290,000 |
$285,000 |
Annual Simplified Employee Pension (SEP) compensation limit:
IRC § 408(k)(3)(C) |
$290,000 |
$285,000 |
| Key employee dollar limitation: IRC § 416(i)(1)(A)(i) |
$185,000 |
$185,000 |
Employee Stock Ownership Plan (ESOP) maximum account balance:
IRC § 409(o)(1)(C) |
$1,165,000
$230,000 |
$1,150,000
$230,000 |
| Highly compensated employee limitation: IRC § 414(q)(1)(B) |
$130,000 |
$130,000 |
Catch-up contributions limitation:
IRC § 414(v)(2)(B)(i) |
$6,500 |
$6,500 |
Savings Incentive Match Plan for Employees (SIMPLE) catch-up contributions limitation:
IRC § 414(v)(2)(B)(ii) |
$3,000 |
$3,000 |
| SEP minimum compensation amount: IRC § 408(k)(2)(C) |
$650 |
$600 |
| SIMPLE contribution limit: IRC § 408(p)(2)(E) |
$13,500 |
$13,500 |
| Deferral limitation: IRC § 457(e)(15) |
$19,500 |
$19,500 |
| Social Security tax wage base |
$142,800 |
$137,700 |
