On October 26, 2020, the IRS issued Notice 2020-79, which provides certain cost-of-living adjustments for a wide variety of tax-related items, including retirement plan contribution maximums and other limitations. Several key figures are highlighted below. These cost-of-living adjustments are effective January 1, 2021.
The elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains at $19,500 in 2021. Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of these plans remains at $6,500. Accordingly, participants in these plans who have attained age 50 will still be able to contribute up to $26,000 in 2021.
The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts remains at $13,500.
The annual limit for defined contribution plans under Section 415(c)(1)(A) increases to $58,000 (from $57,000). The limitation on the annual benefit for a defined benefit plan under Section 415(b)(1)(A) also remains $230,000. Additionally, the annual limit on compensation that can be taken into account for allocations and accruals increases from $285,000 to $290,000.
The threshold for determining who is a highly compensated employee under Section 414(q)(1)(B) remains at $130,000. The dollar limitation concerning the definition of a key employee in a top-heavy plan increases also remains $185,000.
Employers should review the notice for additional information. Sponsors of benefits with limits that are changing will need to determine whether their plan documents automatically apply the latest limits or must be amended to recognize the adjusted limits. Any applicable changes in limits should also be communicated to employees.
IRS Notice 2020-79 »