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When the IRS announced various 2021 retirement plan limits in October, we knew a few limits would change for next year. However, as we get closer to January, it’s important to ensure payroll departments and provides are prepared to apply the following:
– The higher compensation limit (up to $285,000 to $290,000)
– The higher total contribution limit (up from $57,000 to $58,000

Those increases are reflected in the attached summary, built by our Houston team.

For many plans and many participants these changes won’t have much significance. After all, the most commonly relevant limits – the $19,500 elective deferral limit, the $6,500 catch-up contribution limit, and the $130,000 Highly Compensated Employee threshold – remained unchanged.

However, the 401(a)(17) and 415(c) limit increases could be relevant for higher paid employees, particularly when participating in plans with ridiculously generous matching contributions or some sort of generous profit-sharing contribution. In fact, if a plan uses “permitted disparity” or “Social Security integration” to provide a higher benefit on amounts above the Social Security taxable wage base, the plan sponsor should also be aware that the wage base increased from $137,700 to $142,800 for 2021. As you work with your payroll process to ensure it’s modified to reflect the new limits, be sure to take the time to discuss the changes with those employees. In our experience, those might be the people you really need to keep happy (or where the price of failing to do so is the greatest).

Matthew Eickman
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