- Learn new contribution amount limits to 401(k) and similar plans for 2021 .
- Learn the thresholds for determining highly compensated employees and key employees.
- Discover the threshold for SEP participation.
- Find out who is eligible for the saver’s tax credit.
The IRS recently announced the 2021 dollar limits and thresholds for retirement plans, that reflect the latest cost-of-living adjustments. Read on for Fiducial’s list of the relevant amounts for 401(k) plans and similar plans.
Annual contribution to 401(k) plans
The limit on annual contributions to 401(k) and other defined contribution plans will increase to $58,000 (up from $57,000 for 2020).
The annual limit on compensation taken into account for contributions and deductions will increase to $290,000 (up from $285,000).
Elective deferrals for 401(k) and similar plans
The annual limit on elective deferrals will remain at $19,500 for 401(k), 403(b) and 457 plans, as well as for Salary Reduction Simplified Employee Pension plans (SARSEPs). The annual limits will also remain the same at $13,500 for Savings Incentive Match Plans for Employees (SIMPLEs) and SIMPLE IRAs.
Catch-up contributions for 410(k) and similar plans
The annual limit on catch-up contributions for individuals age 50 and over will remain at $6,500 for 401(k) plans, 403(b) contracts, 457 plans and SARSEPs. The annual limit for SIMPLEs and SIMPLE IRAs stays the same at $3,000.
Highly compensated employees
The threshold for determining who’s a highly compensated employee will remain at $130,000.
The threshold for determining whether an officer is a “key employee” under the top-heavy rules (as well as the cafeteria plan nondiscrimination rules) will remain at $185,000.
The threshold for determining participation in a SEP or SARSEP will increase to $650 from $600.
Saver’s tax credit
The upper income limit for determining whether certain individuals are eligible for the saver’s tax credit (also known as the retirement savings contributions credit) will increase to:
- $66,000 (up from $65,000) for married filing jointly,
- $49,500 (up from $48,750) for head of household, and
- $33,000 (up from $32,500) for all other taxpayers.
For individuals whose adjusted gross income is below those thresholds, there are also some adjustments to the income levels that trigger a change in the percentage used to calculate the credit.
Employers that sponsor 401(k) plans and other defined contribution plans should carefully note when the new limits and thresholds apply. You should review and revise employee communications, plan procedures and administrative forms to reflect these changes ASAP.
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