On October 26, 2020, the IRS announced the Cost of Living Adjustments affecting the dollar limitations for retirement plans. Contribution and benefit increases are intended to allow participant contributions and benefits to keep up with the “cost of living” from year to year. Here are the highlights from the 2021 limits:

• The elective deferral limit remains unchanged at $19,500. This deferral limit applies to each participant on a calendar year basis. The limit applies to 401(k) plans, including Roth and pre-tax contributions, 403(b), and 457(b) plans.
• Catch-up contributions remain unchanged at $6,500 and are available to all participants age 50 and older in 2021.
• The maximum dollar amount that can be contributed to a participant’s retirement account in a defined contribution plan increased from $57,000 to $58,000. The limit includes both employee and employer contributions as well as any allocated forfeitures. For those over age 50, the annual addition limit increases by $6,500 to include catch-up contributions.
• The annual benefit limit which applies to participants in a defined benefit plan remains unchanged at $230,000.
• The maximum amount of compensation that can be considered in retirement plan compliance has been raised to $290,000. In addition, income subject to Social Security taxation has increased to $142,800.
• Thresholds for determining highly compensated and key employees remain unchanged at $130,000 and $185,000, respectively.