The Internal Revenue Service and the Social Security Administration have announced the cost of living adjustments (COLA) applicable to dollar limitations for retirement plans and the Social Security wage base for 2021. A few of the limits that currently apply to the 2020 plan year will change for the 2021 plan year.
Employers should make sure that the individuals in charge of their payroll systems are aware of these limits. Also, employee communications and forms should be reviewed and updated as necessary to reflect these 2021 dollar limits.
Limit:
- Maximum annual compensation that may be taken into account for determining benefits or contributions
- Current 2020: $285,000
- 2021: $290,000
- Maximum elective deferral contribution limit for employees who participate in 401(k), 403(b) and most 457 plans
- Current 2020: $19,500
- 2021: $19,500
- Maximum 401(k) and 403(b) and governmental 457(b) catch-up contribution limit for participants age 50 or older
- Current 2020: $6,500
- 2021: $6,500
- Defined contribution maximum annual addition
- Current 2020: $57,000
- 2021: $58,000
- Defined benefit maximum annual benefit
- Current 2020: $230,000
- 2021: $230,000
- Key employee top-heavy plan
- Current 2020: $185,000
- 2021: $185,000
- Highly compensated employee (HCE)
- Current 2020: $130,000
- 2021: $130,000
- Social Security taxable wage base (FICA)
- Current 2020: $137,000
- 2021: $142,800
[View source.]
