Annual Limits on Qualified Plans for 2021

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On October 26, 2020, the Internal Revenue Service (IRS) released Notice 2020-79, which sets forth the 2021 cost-of-living adjustments affecting dollar limits on benefits and contributions for qualified retirement plans. The IRS also announced the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements in Revenue Procedure 2020-45. The health savings account (HSA) and high deductible health plan (HDHP) annual deductible and out-of-pocket expense adjustments were announced earlier this year in Revenue Procedure 2020-32. The Social Security Administration announced its cost-of-living adjustments for 2021 on October 13, 2020, which includes a change to the taxable wage base.

The following chart summarizes the 2021 limits for benefit plans. The 2020 limits are provided for reference.

  2020 2021
Elective Deferral Limit 401(k), 403(b), 457(b)  $19,500 $19,500    (no change)
Catch-up Limit (age 50+) $6,500 $6,500      (no change)
Defined Benefit Limit $230,000 $230,000  (no change)
Defined Contribution Limit $57,000 $58,000
Dollar Limit – Highly Compensated Employees $130,000 $130,000  (no change)
Officer – Key Employee $185,000 $185,000  (no change)
Annual Compensation Limit $285,000 $290,000
SEP Eligibility Compensation Limit $600 $650
SIMPLE Deferral Limit $13,500 $13,500  (no change)
SIMPLE Catch-up Limit (age 50+) $3,000 $3,000  (no change)
Social Security Taxable Wage Base $137,700 $142,800
ESOP 5 Year Distribution Extension Account Minimum $1,150,000 $1,165,000
Additional Amount for 1-Year Extension $230,000 $230,000       (no change)
HSA (Self/Family) Maximum Annual Contribution $3,550/$7,100 $3,600/$7,200
HDHP Minimum Deductible Limits $1,400/$2,800 $1,400/$2,800   (no change)
Out-of-pocket Expense Annual Maximum $6,900/$13,800 $7,00/$14,000
Medical FSA $2,750 $2,750                   (no change)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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