Many employee benefits are subject to annual dollar limits that are occasionally increased due to inflation. The Internal Revenue Service (IRS) recently announced cost-of-living adjustments to the annual dollar limits for various welfare and retirement plan limits for 2021. Most of the limits will remain the same, but some of the limits will increase effective January 1, 2021.
The following are some important limits in effect for 2021:
- Maximum compensation for plan purposes is $290,000
- Maximum monthly benefit for defined benefit plans ages 62 to 65 is the lesser of 100% of compensation or $19,166.67 with an annual benefit $230,000
- Highly Compensated Employee compensation $130,000+
- Maximum Defined Contribution / Profit Sharing Contribution $58,000
- Maximum SEP Contribution $58,000
- Maximum 401(k) Contribution $19,500. Catch-up Contribution for age 50 and over $6,500
- Maximum SIMPLE Contribution $13,500
Employers should update their benefit plan designs with these new limits, and make sure that their plan will reflect the new 2021 limits. Employers may also want to communicate the new benefit plan limits to their employees.
Click here to read the full IRS announcement.