IRS Announces 2021 Cost-of-Living Adjustments for Retirement Plans and for Health and Welfare Benefit Plans

The IRS has announced the 2021 cost-of-living adjustments for retirement plan and health and welfare benefit plan limitations. The charts below set forth the applicable limitations.

Retirement Plans

In 2020, almost all of the limitations that apply to retirement plans increased from the 2019 limit. For 2021, most of the limitations have remained the same. The rows below that are bolded represent changes between the 2020 limits and the 2021 limits. Below is a review of some important limits:

Retirement Plan Limitation	2020 Limit	2021 Limit
401(k) and 403(b) Employee Contribution Limit	$19,500	$19,500
"Catch-Up Contribution" Limit (Age 50 and Older)	$6,500	$6,500
Defined Contribution Maximum Contribution	$57,000 (plus “Catch-Up”)	$58,000 (plus “Catch-Up”)
Defined Benefit Annual Benefit Limit	$230,000	$230,000
Highly Compensated Employee Compensation	$130,000	$130,000
Top-Heavy Key Employee Officer Dollar Limit	$185,000	$185,000
Annual Compensation Limit	$285,000	$290,000
457 Plan Contribution Limit	$19,500	$19,500
Social Security Taxable Wage Base	$137,700	$142,800

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Health and Welfare Benefit Plans

Certain limitations that apply to health and welfare benefit plans remain unchanged, including the Health FSA Contribution limit, the contributions to a dependent care assistance plan (DCAP), and qualified fringe benefit monthly limits. However, many other limitations have changed slightly, as noted in the following chart:

Health and Welfare Benefit Plan Limitation	2020 Limit	2021 Limit
Health FSA Contribution Limit	$2,750	$2,750
Health Savings Account (HSA) Contribution Limits -Family -Single -Catch-Up Limit (Age 55 and Older)	$7,100 $3,550 $1,000	$7,200 $3,600 $1,000
HSA Annual Deductible Minimums -Family -Single	$2,800 $1,400	$2,800 $1,400
HSA Out-of-Pocket Maximums -Family -Single	$13,800 $6,900	$14,000 $7,000
DCAP Limit	$5,000/$2,500 (if married, filing separately)	$5,000/$2,500 (if married, filing separately)
Qualified Transportation Fringe Benefit Monthly Limits -Qualified Parking -Transit Pass/Vanpooling	$270 $270	$270 $270

If you have questions related to these limits or how they affect the administration of your plan, please contact one of the authors of this article.

• Mindi M. Johnson (Grand Rapids) | 616.726.2252 | mjohnson@fosterswift.com
• Julie L. Hamlet (Grand Rapids) | 616.796.2515 | jhamlet@fosterswift.com
• Amanda J. Dernovshek (Lansing) | 517.371.8259 | adernovshek@fosterswift.com