Each year, the Internal Revenue Service reviews the limitations for benefit plan contributions and other supporting factors based on inflationary increases and other factors. Several limits have been updated for 2021:
- For individual 401(k) participants, the maximum amount that can be contributed (pre-tax or after-tax Roth) to 401(k) plans will remain the same at $19,500. See below for the catch-up contribution limits. The total annual contribution to a 401(k) plan increased from $57,000 to $58,000 when including all contribution types.
- The catch-up amount contribution limit remains unchanged at $6,500, for participants aged 50 and older.
- The limit on compensation that can be included for benefit purposes was increased from $285,000 to $290,000.
- The annual amount used to determine a highly compensated employee for discrimination testing purposes remains unchanged at $130,000.
Plan Sponsors should ensure those responsible for benefit administration within their companies are aware of these changes and the payroll and benefit systems are updated accordingly. For more information on this subject, and to see additional benefit plan limit adjustments for other plan types, visit the IRS website.
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