IRS Announces 2021 Retirement Plan Limits – Most Limits Remain Unchanged

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The Internal Revenue Service announced the 2021 cost-of-living adjustments to the dollar limitations for qualified retirement plans and other benefits, and the Social Security Administration announced its own cost-of-living adjustments for 2021.  Most of the dollar limits, including the elective deferral contribution limit for 401(k), 403(b) and 457(b) plans and the dollar limit for catch-up contributions (if age 50 or older), will remain unchanged from 2020 limits.  Other limits, such as the annual compensation limit under 401(a)(17) and the maximum annual contribution limit under Code Section 415(c), will increase in 2021.

RETIREMENT PLAN LIMITS

  2021 Limits 2020 Limits
401(k)/403(b)/457(b) Elective Deferrals $19,500 $19,500
Catch-Up Contribution (plans other than SIMPLE plans) $6,500 $6,500
SIMPLE Plan Employee Deferrals $13,500 $13,500
SIMPLE Plan Catch-Up Contributions $3,000 $3,000
Plan Maximum Annual Contribution – Defined Contribution Plans (Section 415(c)) $58,000 $57,000
Maximum Annual Benefit – Defined Benefit Plans (Section 415(b)) $230,000 $230,000
Compensation Limit under Section 401(a)(17) $290,000 $285,000
Highly Compensated Employee Definition under Section 414(q) $130,000 $130,000
Key Employees Officer Compensation for Top-Heavy Plans $185,000 $185,000
ESOP limit for determining the maximum account balance subject to the 5-year distribution limit $1,165,000 $1,150,000
ESOP dollar amount used for determining the lengthening of the 5-year distribution period $230,000 $230,000

HEALTH AND WELFARE PLAN LIMITS

Health Savings Account and High Deductible Health Plan Limits

Earlier this year, the IRS announced the inflation-adjusted amounts for health savings account and high-deductible health plans for 2021.  The HSA limit for self-only/family coverage will increase to $3,600 and $7,200, respectively for 2021. The maximum annual out-of-pocket expense limits for high deductible health plans for both self-only and family coverage will increase in 2021 but the minimum annual deductible will remain unchanged from 2020 limits.

Health Savings Accounts/HDHP Limits

  2021 Limits 2020 Limits
HSA Contribution — Annual Contribution Limit
Self-Only Coverage $3,600 $3,550
Family Coverage $7,200 $7,100
Catch-Up Contributions (age 55 or older) $1,000 $1,000
High Deductible Health Plan – Minimum Annual Deductible
Self-Only Coverage $1,400 $1,400
Family Coverage $2,800 $2,800
High Deductible Health Plan – Maximum Out of Pocket Limit
Self-Only Coverage $7,000 $6,900
Family Coverage $14,000 $13,800

SOCIAL SECURITY WAGES BASE

Social Security Wage Base

  2021 Limit 2020 Limit
Social Security (FICA) Wage Base $142,800 $137,000

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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