IRS Announces 2021 Pension Plan and Retirement Account Limits

On October 26, 2020, the IRS released Notice 2020-79, announcing cost-of-living adjustments that affect contribution limits for retirement plans and retirement accounts in 2021. The list below, although not exhaustive, highlights key limits retirement plan sponsors should be aware of:

  • The elective deferral limit remains unchanged at $19,500.
     
  • The catch-up contribution limit for employees age 50 and older remains unchanged at $6,500.
     
  • The aggregate contribution limit for defined contribution plans is increasing from $57,000 to $58,000.
     
  • The annual compensation limit used to calculate contributions is increasing from $285,000 to $290,000. 
  • The limitation on the annual benefit under a defined benefit plan remains unchanged at $230,000. (For a participant who separated from service before January 1, 2021, the limitation for defined benefit plans under Section 415(b)(1)(B) can be computed by multiplying the participant’s compensation limitation, as adjusted through 2020, by 1.0122.)
     
  • The dollar limit used in the definition of key employee in a top-heavy retirement plan remains unchanged at $185,000.
     
  • The dollar limit used in the definition of highly compensated employee remains unchanged at $130,000.

The table below compares the newly announced 2021 retirement plan contribution limits with 2020 limits.

Plan Feature

2020 Limit

2021 Limit

401(k) and 403(b) elective deferral 

$19,500

$19,500

Aggregate defined contribution

$57,000

$58,000

Compensation limit

$285,000

$290,000

Defined benefit dollar limit

$230,000

$230,000

Key employee compensation

$185,000

$185,000

Highly compensated employee compensation

$130,000

$130,000

Catch-up contribution

$6,500

$6,500

457 deferral

$19,500

$19,500