New 2021 IRS Retirement Plan Limits Announced

The Internal Revenue Service publishes, on a yearly basis, certain Pension Plan Limitations for the coming year. We have outlined the most commonly applied limits for your reference.

Maximum Defined Contribution Annual Additions Limit:  

In a Defined Contribution Plan, which includes Profit Sharing and 401(k) Plans, the Internal Revenue Code sets limits on contributions made to a participant’s account.  The Code uses the term “annual additions” which represents both employee and employer contributions as well as reallocated forfeitures.  Effective January 1, 2021, the annual dollar limit for defined contribution plans is the lesser of 100% of compensation or $58,000.  

Maximum Defined Benefit Limit: 

Ultimate benefit that may be funded for at retirement.  Effective January 1, 2021, the annual dollar benefit under a defined benefit pension plan is the lesser of 100% of compensation or $230,000.

Annual Compensation Limit:

Effective January 1, 2021, the annual compensation limit is $290,000.  Compensation in excess of the limit will be disregarded for all computation purposes.

Key Employee defined for Top Heavy determination: 

1. A 5% owner, without regard to compensation, or

2. 1% owner whose annual compensation is over $150,000, or

3. Officers with annual compensation in excess of $185,000.

Highly Compensated Employee (HCE) defined for 401(k) / 401(m) testing:

1. A 5% owner of an Employer or an Affiliate in the current or the immediately preceding plan year, or

2. Any employee earning more than $130,000 in 2020 ($130,000 for 2021)

3. Constructive ownership rules apply attributing ownership to spouses and lineal ascendants and descendants (parents, grandparents, children and grandchildren) of the owner in both of the above employee definitions.

Maximum Limit on 401(k) Elective Deferral Contributions:

A participant’s elective deferral contributions under all 401(k) plans in which he or she participates during any taxable year is $19,500 for the 2021 Calendar Year. 401(k) plans may permit participants who have reached age 50 by the end of the plan year to make annual catch-up contributions once the annual dollar limit or a plan-imposed limit on elective deferrals has been reached.  For calendar year 2021, the limit is $6,500.

Maximum Limit on SIMPLE 401(k) or SIMPLE IRA Deferral Contributions:

A participant’s elective deferral contributions under a SIMPLE 401(k) plan or SIMPLE IRA account in which he or she participates during the year is $13,500 for the 2021 Calendar Year. Participants who have reached age 50 by the end of the plan year to make annual catch-up contributions once the annual dollar limit or a plan-imposed limit on elective deferrals has been reached.  For calendar year 2021, is $3,000.

Taxable Wage Base:

The Taxable Wage Base for 2021 is $142,800.

Please call us with any questions you may have. For a printable version of the plan limits, click here.

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