Cost of Living Adjustments for 2021

Tina M. D'Agata (Oct, 2020)

The IRS has released the Cost of Living Adjustments for 2021.  Some of the dollar limitations relating to qualified retirement plans have been increased, along with other retirement-related items.

Important Changes for 2021:

  • The limitation for defined contribution plans under Section 415(c)(1)(A) is increased to $58,000 from $57,000 in 2020.
  • In addition to contribution limits, the income ranges will increase in 2021 for determining eligibility to make deductible contributions to traditional Individual Retirement Accounts (IRA), Roth IRAs and to claim the saver’s credit. 
  • The social security taxable wage base increased to $142,800 from $137,700 in 2020.

The following chart reflects some of the updated amounts for tax year 2021.

ANNUAL PLAN LIMITS

2021

2020

Compensation

$290,000

$285,000

Highly Compensated Definition

$130,000

$130,000

Key Employee Definition

$185,000

$185,0000

LIMITS ON BENEFITS & CONTRIBUTIONS

 

 

Defined Contribution Plans

$58,000

$57,000

Defined Benefit Plans

$230,000

$230,000

401(k) – 403(b) - & 457 Plan Elective Deferrals

$19,500

$19,500

Simple Plan Elective Deferrals

$13,500

$13,500

IRA

$6,000

$6,000

     CATCH UP CONTRIBUTIONS

 

 

401(k) – 403(b) - & 457 Plans

$6,500

$6,500

Simple Plans

$3,000

$3,000

IRA

$1,000

$1,000

SOCIAL SECURITY TAXABLE WAGE BASE

$142.800

$137.700

TRADITIONAL IRA DEDUCTION PHASEOUT

 

 

Single, Head of Household – Active Participant

$66,000/$76,000

$65,000/$75,000

Married Filing Separate – Any spouse participates

$0/$10,000

$0/$10,000

Married Filing Joint – Nonparticipating spouse

$198,000/$208,000

$196,000/$206,000

Married Filing Joint – Participating Spouse

$105,000/$125,000

$104,000/$124,000

ROTH IRA CONTRIBUTION ELIGIBILITY

 

 

Married Filing Joint

$198,000/$208,000

$196,000/$206,000

Single, Head of Household

$125,000/$140,000

$124,000/$139,000

Married Filing Separate – Any spouse participates

$0/$10,000

$0/$10,000

A more detailed account of these changes can be found in Notice 2020-76.   If you have any questions regarding the Cost of Living Adjustments or your 401(k), we encourage you to contact your Dermody, Burke & Brown advisor.

 

The information reflected in this article was current at the time of publication.  This article will not be modified or updated for any subsequent tax law changes, if any.