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Cost of Living Adjustments for 2021
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.