The Internal Revenue Service (IRS) has announced that the amount employees may contribute to their 401(k) and 403(b) plans next year remains at $19,500. The IRS announced this week its inflation adjustments for 2021, including:
- Overall contribution limit for defined contribution plans increases from $57,000 to $58,000 (but see catch-up contributions below).
- Catch-up contributions for 401(k) or 403(b) plans for individuals aged 50 or over remains unchanged at $6,500.
- Total compensation that may be considered under a qualified plan increases from $285,000 to $290,000.
- Limitation for defining a highly compensated employee remains unchanged at $130,000.
- Employee contributions to a flexible spending account remains at $2,750.
- If the cafeteria plan permits carryover of unused amounts, the carryover amount is $550.
Earlier this year, in Rev. Proc. 2020-32, the IRS announced adjustments to amounts for high deductible health plans (HDHPs) that may be paired with tax-advantaged Health Savings Accounts (HSAs). In 2021, HDHPs must have annual deductibles of not less than $1,400 for self-only coverage, or $2,800 for family coverage (both unchanged). Annual out-of-pocket expenses (excluding premiums) for covered benefits under HDHPs may not exceed $7,000 for self-only coverage ($100 increase), or $14,000 for family coverage ($200 increase).
Separately, the Social Security Administration has announced that the maximum amount of earnings subject to the Social Security tax increases from $137,700 to $142,800 for 2021.
Be in touch with any questions and stay tuned.