Pension & Benefits News 2021 COLAs for retirement plan dollar limits released
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Monday, November 9, 2020

2021 COLAs for retirement plan dollar limits released

By Pension and Benefits Editorial Staff

The IRS has released the 2021 cost-of-living adjustments to retirement plan limits. Most of the pension plan limitations will not change for 2021 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment. However, other limitations will change because the increase in the index did meet the statutory thresholds.

Employee benefit plans are subject to annually adjusted dollar limitations on benefits, contributions, compensation and other items. Annual benefit limits are generally calculated based on inflation data from the third fiscal quarter of each year. Adjustments in the limits are rounded down and may not take effect until certain minimum dollar amounts are reached.

Increased 2021 plan limits. Highlights of the 2021 maximum dollar limitations that changed from 2020 include the following:

  • Annual defined contribution limit: $58,000, up from $57,000 in 2020;
  • Annual compensation limit: $290,000, up from $285,000 in 2020; and
  • SEP coverage amount: $650; up from $600 in 2020.

Unchanged 2021 plan limits. Highlights of the 2021 maximum dollar limitations that did not change include the following:

  • Annual defined benefit limit: $230,000, unchanged from 2020;
  • Elective deferral limit: $19,500, unchanged from 2020;
  • Dollar limit for key employees in a top-heavy plan: $185,000, unchanged from 2020;
  • Highly compensated employee limit: $130,000, unchanged from 2020;
  • Annual contribution limit for IRAs: $6,000, unchanged from 2020;
  • Catch-up contribution limit for 401(k) plans for employees age 50 and over: $6,500, unchanged from 2020;
  • Catch-up contribution limit for SIMPLE 401(k) plans and SIMPLE IRAs for employees age 50 and over: $3,000, unchanged from 2020;
  • Dollar limit on premiums paid with respect to a qualified longevity annuity: $135,000, unchanged from 2020; and
  • Annual limit for SIMPLE plans: $13,500, unchanged from 2020.

IRAs. The income phase-out range for IRA contributions for single taxpayers covered by a workplace retirement plan in 2021 is $66,000 to $76,000 for singles, up from $65,000 to $75,000 in 2020. For married couples filing jointly in 2021, where the spouse making IRA contributions is covered by a workplace retirement plan, the income phase-out range is $105,000 to $125,000, up from $104,000 to $124,000 in 2020. The income phase-out range for an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered is $198,000 to $208,000, up from $196,000 to $206,000 in 2020. The phase-out range for a married individual filing a separate return who is covered by a workplace retirement plan is not subject to an annual cost-of-living adjustment and remains $0 to $10,000 for 2021.

The income phase-out range for taxpayers making contributions to a Roth IRA in 2021 is $125,000 to $140,000 for singles and heads of household, up from $124,000 to $139,000 in 2020. For married couples filing jointly, the income phase-out range in 2021 is $198,000 to $208,000, up from $196,000 to $206,000 in 2020. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000 for 2021.

Source: IRS Notice 2020-79.

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