2021 Retirement Plan Maximums and Limits/Saver's Credit
The Internal Revenue Service (IRS) has announced the dollar maximums and limits for qualified pension plans for 2021. These reflect the applicable cost-of-living adjustments required by the federal tax law and provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that are effective for the 2021 tax year only.
Sections 1–3 highlight contribution maximums and limits established by the IRS for various retirement plans. All dollar amounts are effective January 1, 2021; changes, if any, from 2020 are noted. Section 4 highlights annual compensation amounts for highly compensated employees and key employees in a top-heavy plan. Section 5 highlights the Saver's Credit tax credit for 2021.
1. Retirement Plan Dollar Maximums for 2021
The following table highlights contribution maximums established by the IRS for various retirement plans. All dollar amounts are effective January 1, 2021.
|Plan||Maximum Elective Deferral or Contribution Limit1||Increase from 2020||Age 50 and Older Additional"Catch-Up" Contribution Limit|
|TDA, 403(b) Thrift2and 401(k)||$19,500||$0||$6,5003|
|SIMPLE IRA andSIMPLE 401(k)||$13,500||$0||$3,000|
|Traditional IRAand Roth IRA||$6,000||$0||$1,000|
|Section 457(b)Eligible Deferred Compensation||$19,500||$0||$6,5003|
2. Retirement Plan Compensation Limits for 2021
|Plan||Annual Compensation Limitfor Contribution Purposes||Increase from 2020|
|TDA, 403(b) Thrift and 401(k), Defined Benefit and Defined Contribution Plans||$290,000 maximum compensation||$5,000|
|SEP participant requirements||$650 minimum compensation||$50|
|SEP discrimination requirements||$290,000 maximum compensation||$5,000|
|Roth IRA|| Contribution limit is reduced or eliminated based on the amount by which the taxpayer's Adjusted Gross Income (AGI) minus an "applicable AGI amount" exceeds $15,000 ($10,000 for married taxpayers filing a joint return). |
Applicable AGI amounts for 2021:$198,000 to $208,000 (married filing joint return) $0 to $10,000 (married filing separate return) $125,000 to $140,000 (all other taxpayers)
|Traditional IRA|| |
Deduction for contribution is reduced or eliminated for an active participant in an employer-sponsored retirement plan, based on the amount by which the taxpayer's AGI minus an "applicable AGI amount" exceeds $10,000 ($20,000 for an active participant who is a married taxpayer filing a joint return).
Applicable AGI amounts for 2021 for active participants:$105,000 to $125,000 (married filing joint return) $0 to $10,000 (married filing separate return) $66,000 to $76,000 (all other taxpayers)
For a married taxpayer filing a joint return who is not an active participant in an employer-sponsored retirement plan, but whose spouse is, the $10,000 amount mentioned above is not increased to $20,000 and the "applicable AGI amount" for 2021 is $198,000 ($2,000 increase from 2020).
These are limits established by the Internal Revenue Code. In some cases, employers may set lower annual limits for your plan. In addition, these limits are generally applied in the aggregate.
The elective deferral limit applies to all voluntary salary reduction amounts made by an employee to any plan. The defined contribution plan annual additions limit applies to all annual additions to all defined contribution plans (including 401(k) and profit-sharing plans) and SEP-IRAs of the same employer. Additional limits may apply, depending on the type of plan, which may further limit elective deferrals and/or annual additions. Contribution limits are not necessarily equal to employer deduction limits, and generally, these plans also further limit contributions for taxable employers to the deduction limit.
Similarly, the limits on annual benefits in a defined benefit plan applies to all defined benefit plans of the same employer and cannot exceed 100% of a participant's average compensation, if less. This annual benefit limit is expressed as a non-refund life annuity at age 65 and is reduced for different forms and ages and for participation of less than 10 years, and may be further reduced if certain provisions are applicable, such as cost-of-living adjustment features.
3. Retirement Plan Dollar Limits for 2021
|Plan||Applicable Maximum||Increase from 2020|
|Defined Benefit||$230,000 on annual benefits*||$0|
|Defined Contribution||$58,000 or 100% of compensation, whichever is less, on contributions||$1,000|
*Or 100% of compensation for high 3 years, whichever is less.
These are limits established by the Internal Revenue Code. In some cases, employers may set lower annual limits for their plan(s). In addition, these limits are generally applied in the aggregate.
The defined contribution plan annual additions limit applies to all annual additions to all defined contribution plans (including 401(k) and profit-sharing plans) and SEP-IRAs of the same employer and cannot exceed 100% of a participant's average compensation, if less.
4. Retirement Plan Annual Compensation Amounts for 2021
|Plan||Applicable Maximum||Increase from 2020|
|Definition of Highly Compensated Employee||$130,000||$0|
|Definition of Key Employee in a Top-Heavy Plan||$185,000||$0|
These amounts are established by the Internal Revenue Code.
5. Saver's Credit for 2021
The Saver's Credit is a tax credit of up to $1,000 ($2,000 if married filing jointly) for low- and moderate-income taxpayers who contribute to a traditional or Roth IRA, 401(k), 403(b), governmental 457 or SIMPLE IRA plan. The credit is equal to 50%, 20%, 10% or 0% of your contribution, depending on your adjusted gross income. The following table shows the income limits to claim the credit for 2021.
|Credit Rate(% of contribution)||MarriedFiling Jointly||Head ofHousehold||All OtherFilers*|
|50%||Up to $39,500||Up to $29,625||Up to $19,750|
|0%||$66,001 & up||$49,501 & up||$33,001 & up|
*Single, married filing separately or qualifying widow(er).