2021 Cost of Living Adjustments (COLA)

New retirement plan limits announced

On October 26, 2020, the Internal Revenue Service announced cost of living adjustments affecting dollar limitations (“COLA limits”) for pension plans and other retirement-related items for tax year 2021.

Click here to download a printable summary.

  2021 2020

401(k) / 403(b) / Existing SARSEP Elective deferral limit
All elective deferrals (including designated Roth contributions) in a tax year made by a participant  to a 401(k), 403(b) tax deferred annuity, simplified employee pension, and SIMPLE retirement plan are aggregated under IRC Section 402(g).

 $19,500  $19,500

457 Deferral Limits
The lesser of the limitation on vested contributions to 457 plans under IRC Section 457(e)(15) or 100% of includible compensation.

 $19,500  $19,500

Age 50+ Catch-up Limits
The special catch-up available under IRC Section 414(v) for individuals at least 50 years old in 2021 and make eligible pre-tax contributions to 401(k), 403(b), and governmental 457 plans.

The special catch-up is available for individuals who are at least
50 years old in 2021 and make eligible pre-tax contributions to a SIMPLE plan.

 $6,500

 

 $3,000

 $6,500

 

 $3,000

403(b) Catch-up limit
The maximum available 402(g) elective deferral limit plus the special catch-up election for employees participating in a 403(b) tax deferred annuity who have had at least 15 years of service with an educational organization, hospital, home health agency, health and welfare service agency, church or convention or association of churches.  Note: The additional 403(b) special catch-up of up to $3,000 per year cannot exceed cumulatively $15,000 over the lifetime of the 403(b) participant.

 $22,500  $22,500

457 Catch-up limit
The special catch-up election for employees participating in an eligible 457 deferred compensation who have elected the special catch-up available in the three years prior to the year of normal retirement age.  Note: The participant in a governmental 457(b) plan may make catch-up contributions in a year equal to the greater of (a) the amount permitted under the age 50+ catch-up, or (b) the amount permitted under the 457 catch-up.

 $39,000  $39,000

Defined Contribution Plan 415 dollar limit
The lesser of the dollar limitation for annual additions under defined contribution plans under IRC Section 415(c)(1)(A) or 100% of compensation.

 $58,000  $57,000

Defined Benefit Plans
The lesser of the maximum dollar limitation for annual benefits under defined benefit plans under Internal Revenue Code (IRC) Section 415(b)(1)(A) or 100% of the participant's average compensation for his high 3 years.

 $230,000   $230,000 

Definition of Key Employee
The compensation threshold used for determining key employees under IRC Section 416(i)(1)(A)(i).

 $185,000  $185,000

Definition of Highly Compensated Employees
The compensation threshold used for determining highly compensated employees under IRC Section 414(q)(1)(B).

 $130,000  $130,000

Compensation Limit
The annual limit of compensation that may be taken into account for contribution purposes in accordance with IRC Section 401(a)(17).

The annual limit of compensation that may be taken into account for contribution purposes in accordance with IRC Section 401(a)(17) (certain grandfathered governmental plan participants).

 $290,000

 

 $430,000

 $285,000

 

 $425,000

Adjusted Gross Income Limit for Saver’s Credit
The highest adjusted gross income (based on federal income tax filing status) taken into account for eligibility for the Saver’s Credit under IRC Section 25B.

 

$66,000 (joint)
$33,000 (single)
$49,500 (head of household)
$65,000 (joint)
$32,500 (single)
$48,750 (head of household)

SIMPLE Retirement Accounts
Compensation taken into account that an employee may elect to defer under a SIMPLE retirement plan described in IRC Section 408(p)(2).On October 13, 2020, the Social Security Administration released its cost of living information for 2020:

Compensation for SEPs
Compensation taken into account to determine eligibility for simplified employee pensions (SEPs)

$13,500

 

 

$650

$13,500

 

 

$600

On October 13, 2020, the Social Security Administration released its cost of living information for 2020:

Taxable Wage Base
Maximum amount of earnings subject to payroll tax.

 

$142,800

 

$137,700

 

This material has been provided for educational purposes only for sponsors and prospective sponsors. This material was created to provide accurate and reliable information on the subjects covered. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.

IRS Circular 230 Disclosure: Any tax advice contained in this document (including any attachments) was not intended by the author of this document to be used, and cannot be used by the audience or any other person, for the purpose of avoiding any Internal Revenue Code penalties that may be imposed on such person. Any tax advice contained in this document was not intended by the author of this document to be used or referred to, and cannot be used or referred to, in promoting, marketing, or recommending the transaction(s) or matter(s) addressed herein.


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