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2021 IRS COLA Limits Announced | 401(k) & Qualified Plans

2021 Brings Higher Annual Additions and Considered Compensation Limits

The IRS released the cost of living adjustments (COLA) for various retirement plan limitations that will take effect on January 1, 2021. 

While 2020 brought increases to almost every important limit we can think of, 2021 does welcome in a few impactful limit increases too.

What's Up?

  • The maximum defined contribution limit for an individual (the annual additions limit) has increased to $58,000.
    • This is the total amount any one individual can have contributed by or for themselves, It includes salary deferrals of $19,500 plus any employer contributions, collectively not exceeding $58,000. It is exclusive of age 50 catch-up amounts.
  • The Social Security Taxable Wage Base is now $142,800.
    • For retirement plans that use an Integrated profit sharing formula, for example, should know that this limit has also increased.
  • The annual compensation limit (the maximum that is considered for qualified plans) has increased to $290,000.
    • Compensation is used for many plan purposes, including, but not limited to, employer allocation preparation and nondiscrimination testing.

What's Not?

  • Salary Deferral contribution limits remain unchanged at $19,500.
    • This limit covers 401(k), 403(b), and 457(b) plans. It applies to plans offering Pre-Tax Elective Deferrals and/or Roth Elective Deferrals. A plan that provides for both still caps the total employee contributions (pre-tax, Roth, or a combination of the two) at this limit. 
  • Catch-up contributions, remains unchanged at $6,500.
    • Catch-up in this instance refers to the salary deferral contributions of plan participant turning 50 or who are over age 50 in 2021.

Plan Section Limit 2020 2021
Maximum Defined Contribution Annual Additions $57,000 $58,000
Salary Deferral 401(k)/403(b) Limit $19,500 $19,500
Catch-Up Limit $6,500 $6,500
Maximum Compensation for Retirement Plan Purposes $285,000 $290,000
HCE Compensation Limit $130,000 $130,000
Key Employee Officer $185,000 $185,000
Key Employee 1% Owner $150,000 $150,000
Social Security Taxable Wage Base $137,700 $142,800

More Information on COLA Limit Increase

Learn more about these increases and how they impact your retirement plan by contacting Uniglobal and your Uniglobal consultant.

Additional information on limit changes for 2021 can be found in IRS Notice 2020-79. The IRS page COLA Increases for Dollar Limitations on Benefits and Contributions expands on the highlights in this post. The IRS also provides a tool if you’d like to get a Retirement Savings Check-Up.