IRS releases 2021 retirement plan and IRA COLA-based limitation amounts

The IRS has released its 2021 cost-of-living-adjusted limitation amounts for tax-qualified retirement plans and IRAs. Read on for a summary of the most important updates.

Tax-qualified retirement plans

• Defined benefit plan annual accrual limit – unchanged at $230,000.
• Defined contribution plan annual addition limit – increased from $57,000 to $58,000. 
• Elective deferrals annual limit – unchanged at $19,500. 
• Annual compensation limit – increased from $285,000 to $290,000. 
• Compensation threshold for top-heavy plan “key employee” status – unchanged at $185,000. 
• Compensation threshold for “highly compensated employee” status – unchanged at $130,000. 
• Dollar limit for catch-up contributions for individuals aged 50 or over – unchanged at $6,500.
• Contribution limit for SIMPLE retirement accounts – unchanged at $13,500. 
• Annual Section 457(b) plan limit – unchanged at $19,500.

Traditional IRAs

• Annual maximum deductible amount for traditional IRA contributions – unchanged at $6,000. 
• Dollar amount for determining deductible amount of traditional IRA contributions
  • For active participants in an employer retirement plan filing a joint return or as a qualifying widow(er) – increased from $104,000 to $105,000. 
  • For all others who are active participants in an employer retirement plan (other than married taxpayers filing separate returns) – increased from $65,000 to $66,000. 
• Adjusted gross income limit for determining deductible amount of a traditional IRA contribution for a taxpayer who is not an active participant in an employer retirement plan but whose spouse is – increased from $196,000 to $198,000. 
• Adjusted gross income phase-out range for determining deductible amount for traditional IRA contributions 
  • For single individuals and heads of household who are active participants in an employer retirement plan – increased from $65,000-$75,000 to $66,000-$76,000. 
  • For married couples filing jointly where the spouse who makes the traditional IRA contribution is an active participant in an employer retirement plan – increased from $104,000-$124,000 to $105,000-$125,000. 
  • For traditional IRA contributions by an individual who is not an active participant in an employer retirement plan but whose spouse is – increased from $196,000-$206,000 to $198,000-$208,000. 

ROTH IRAs

• Adjusted gross income limit for determining maximum Roth IRA contributions 
  • If married and filing jointly or if filing as a qualifying widow(er) – increased from $196,000 to $198,000. 
  • For all others (other than married taxpayers filing separate returns) – increased from $124,000 to $125,000. 
• Adjusted gross income phase-out range for contributions to a Roth IRA 
  • For married couples filing jointly – increased from $196,000-$206,000 to $198,000-$208,000. 
  • For singles and heads of household – increased from $124,000-$139,000 to $125,000-$140,000.

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